Bankers doubt loan-forgiveness policy

WASHINGTON — Top banking industry executives are skeptical about helping troubled borrowers by forgiving a portion of their debt.

The executives told lawmakers on Tuesday they are reducing the amount that troubled borrowers owe on their home loans only in limited cases. That’s because consumers who are paying their mortgages on time are likely to see such reductions as unfair, the executive said.

David Lowman, chief executive of JPMorgan Chase’s mortgage business, told the House Financial Services Committee that large-scale mortgage principal reduction “could be harmful to consumers, investors and future mortgage market conditions.”

Chase estimates that reducing home loan balances so that no homeowners would owe more than the value of their homes would cost up to $900 billion, with $150 billion of that borne by the government.

Such programs “could raise issues of fairness,” agreed Sanjiv Das, Citigroup’s top mortgage executive. The pair appeared in front of the Senate committee with top executives from Bank of America and Wells Fargo & Co.

The four mortgage companies are the largest in the country and have come under fire for not doing enough to help borrowers as part of the Obama administration’s $75 billion mortgage relief program, which has failed to make a big dent in the problem.

Only 170,000 homeowners have completed loan modifications out of 1.1 million who began the program over the past year.

Democrats blame the industry. But Republicans say the Obama administration should abandon the effort and focus on creating jobs.

“The market needs to find its own footing free of government intervention and manipulation so we can revive our economy and get on with a full housing market recovery,” said Rep. Spencer Bachus of Alabama, the committee’s senior Republican.

Last month, the Obama administration launched a plan to reduce the amount some troubled borrowers owe on their home loans and give jobless homeowners a temporary break. Administration officials cautioned that the plan won’t stop all foreclosures or help all troubled homeowners. Instead, they say it will help the Obama administration meet their original target, announced last year, of helping 3 million to 4 million borrowers avoid foreclosure.

The four big banks at Tuesday’s hearing are also the main holders of second mortgages such as home equity loans. During the housing boom, business boomed for so-called “piggyback” mortgages — second loans that allowed consumers to make a little or no down payment.

These loans may be worth little or nothing, but banks are reluctant to release their claims or reduce the value of those loans on their books. Complicating matters, many borrowers are choosing to pay their second mortgages ahead of their primary ones. So banks have little incentive to modify those loans as long as homeowners are still paying on time.

The Treasury Department has launched a program to modify second mortgages. That program was delayed for months but the four big banks signed on after pressure from the Obama administration and lawmakers.

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2 Responses to “Bankers doubt loan-forgiveness policy”

  1. Bankers doubt loan-forgiveness policy Says:

    [...] Read some-more on Mississippi Business Journal [...]

  2. Loan Modification Says:

    The only hope against foreclosure is loan modification now.

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