Friday, October 31, 2008

Mixed Reviews on Report of New JPMorgan Chase Foreclosure Assistance Program

Various media report today that JP Morgan Chase has announced new efforts to help homeowners avoid foreclosure. CNNMoney.com reported that "JPMorgan Chase unveiled a bold new foreclosure prevention program" while Forbes characterizes this bit to help as merely a "little one." Chase purports that it expects to help 400,000 families avoid foreclosure by addressing $70 billion of loans. Another media report states that Chase plans to modify "$110 billion" of mortgages. The media reports that Chase's new program is in the wake of its acceptance of $25 billion in cash infusion from the government within the past two week. But a New York Times article quotes a Chase official that this new program is "not an act of charity or a response to government pressure". Chase did not reveal how much money it plans to spend in this new program. FDIC chairman Sheila Bair called Chase's new plan "a welcome development."

Significantly, Chase announced that it will not institute foreclosure on struggling homeowners for 90 days while it implements the new program and sets up 24 regional counseling centers.

The various articles though note that Chase's new program will apply only to loans owned directly by the bank in distinction to those merely serviced by the bank. Apparently of the $1.5 trillion in mortgages Chase "controls", nearly 80% are owned by investors with only 20% as bank holdings. Chase though apparently announced that it will attempt to obtain authority from its "investors" to apply this foreclosure prevention plan to their mortgage loans. But in what may be quite an understatement, the Chase spokesperson noted that "this is very complicated." Mortgage servicers such as Chase may face liability to the investors if it reduces the mortgages without the investors' approval. There also may be tax constraints under the "REMIC" provisions of the Internal Revenue Code.

The articles state that one of the goals of Chase's new program is to eliminate the negative amortization loans it services that were inherited from Washington Mutual Bank and EMC. These negative amortization loans include option adjustable rate mortgage or "pay-option ARMS." It is reported that the modification to be offered to these so called "toxic" mortgages include conversion to 30-year fixed loans or conversion to 10 year interest-only loans with principal deferment,with an aspect of loan forgiveness.

CNNMoney.com also notes that Chase's program is similar to that offered by Bank of America to the troubled Countrywide loans it acquired. Reportedly Bank of America is reducing monthly mortgage payments to 34% of the borrower's gross income in order to made them affordable to homeowners.
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