J. P. Morgan Chase & Company has announced that it will make its own contribution to stemming the tide of foreclosures sweeping the country by modifying around $70 billion of its owned mortgages that are in or nearing default.

The bank's efforts will focus on restructuring loans for borrowers who are at risk of foreclosure and it has placed a 90 day moratorium on all foreclosures in order to put guidelines for its program in place.  The company will hire and train an estimate 300 additional loan counselors (it currently employs about 2,500) and open two dozen new regional counseling centers.

The company has targeted 400,000 families for the rescue program.  This is in addition to what it claims are 250,000 families which have already been helped in the earlier restructure of some $40 billion in loans.

The bank is also a major servicer of loans owned by others.  Its own mortgages account for only 20 percent of the total portfolio it controls.  (The Wall Street Journal pegs the number at only 4.7 percent.)  The restructuring program will not, at least at present, apply to those serviced mortgages however it hopes that eventually the initiative can be expanded to include some of the investor owned loans.

The Chase program joins one previously announced by the Federal Deposit Insurance Corporation (FDIC) for the assets it has taken from the failed IndyMac Bank which was a major player in the mortgage industry.  Bank of American has also started a modification program as did Wachovia Bank shortly before it was taken over by Wells Fargo Bank.



The FDIC decided, after its experience in the banking and savings and loan crises of the late 1980's and early 1990's that there was a far greater recovery possible from working with borrowers to modify loans than in foreclosing on the underlying collateral.  It has been trying to convey the wisdom of shoring up homeowners to the Federal Reserve and the Treasury Department which appeared to be focused on the recovery of financial institutions and the credit market.  FDIC Chairman Sheila Bair has submitted a plan for White House consideration which would help three million homeowners facing mortgage defaults. 

According to an article in The WSJ about the Chase program 7.3 million American homeowners are expected to default on their mortgages between 2008 and 2010 and approximately 4.3 million of them will actually lose their homes.

While Chase plans to work with holders of all types of mortgage loans, a particular emphasis of the new program will be on pay-option adjustable rate mortgages.  These now widely discredited instruments allowed borrowers to make a monthly payment that might not even be sufficient to cover the mortgage interest, the balance of which was added to the principle in a variation on negative amortization loans.  While the borrower could certainly make a payment that covered the interest or a regular interest and principal payment most opted for the lowest required amount. Chase inherited a large number of these pay-option loans when it acquired the failing Washington Mutual Bank and EMC.

According to CNNMoney.com, the bank will offer borrowers affordable 30-year fixed-rate loans or 10-year interest only loans where principal payments are deferred and may be forgiven over a period of years or until the house is sold.

One particularly unusual feature of the Chase plan is their intention to go to the borrower.  Caseworkers will review the entire bank-owned portfolio to determine loans that can benefit from the program and will then contact the borrowers.  Hopefully this will eliminate the frustration experienced by many troubled homeowners who have been unable to reach appropriate help or get any response to their requests for assistance.

According to CNN Charley Scharf, CEO of Retail Financial Services at Chase said of the program, "While Chase has helped many families already, we feel it is our responsibility to provide additional help to homeowners during these challenging times.  We will work with families who want to save their homes but are struggling to make their payments."