Friday, October 31, 2008

JPMorgan Agrees to Keep Customers Out of Foreclosure

(Bloomberg) JPMorgan Chase & Co., the largest U.S. bank by market value, said it won't begin foreclosure proceedings for as long as the next 90 days while it finds ways to make payments easier on $110 billion of problem mortgages.

The bank, which two weeks ago accepted a $25 billion cash infusion from the government, may agree to reduce interest rates or principal amounts, New York-based JPMorgan said today in a statement. It will also open 24 centers to provide counseling in areas with high delinquency rates.

Congress has been urging financial-services companies to work with borrowers and avoid foreclosures, which rose to the highest on record in the third quarter. Bank of America Corp. said in July it would help more than 250,000 at-risk borrowers stay in their homes. States pivotal to the Nov. 4 U.S. election, including Florida, Ohio and Nevada, had some of the highest foreclosure rates, according to data compiled by RealtyTrac.

``Politics is playing such a huge role in this process, the banks have to be very cognizant of how they're perceived,'' said Charles Peabody, partner and research analyst at Portales Partners LLC in New York. ``What they want to do is show they deserve this good deal from the government by helping out the average man.''

Federal Deposit Insurance Corp. Chairman Sheila Bair has proposed a plan to guarantee mortgages to help stem foreclosures, according to two congressional aides briefed on the matter. Her idea is to use as much as $50 billion of the $700 billion financial-services industry bailout package approved by lawmakers this month.

`Welcome Development'

Bair called the JPMorgan plan a ``welcome development'' for the $10.6 trillion mortgage market.

``A clear consensus is emerging that broad-based and systematic loan modifications are the best way to maximize the value of mortgages while preserving homeownership,'' Bair said in an e-mailed statement. That process will help ``stabilize home prices and the broader economy,'' she said.

The JPMorgan program is expected to help 400,000 families with $70 billion in loans in the next two years, the bank said. An additional 250,000 families with $40 billion in mortgages have already been helped under existing loan-modification programs.

``We felt it is our responsibility to provide additional help to homeowners during these challenging times,'' said Charlie Scharf, chief executive officer of retail financial services at JPMorgan Chase. ``We will work with families who want to save their homes but are struggling to make their payments.''

Bank of America

Bank of America helped more than 117,000 homeowners avoid foreclosure from January through June, almost double the pace in the second half of 2007, it said in July. The bank said at the time it will modify at least $40 billion in troubled mortgages by the end of 2009.

Countrywide, the mortgage lender acquired by Bank of America, agreed earlier this month to help about 400,000 customers facing foreclosure or having problems paying their loans as part of settlement with 11 states over fraud complaints.

JPMorgan said today it would hire 300 loan counselors to help delinquent homeowners and employ about 150 people to review each mortgage before it's sent to the foreclosure process. Other employees will be added to staff the regional counseling centers.

JPMorgan, which has lost 5.5 percent this year on the New York Stock Exchange, rose $3.63, or 10 percent, at 4:15 p.m. The KBW Bank Index of 24 companies advanced 4.4 percent.

WaMu, EMC

The bank's program extends to customers of Washington Mutual Inc., the savings and loan JPMorgan agreed to buy last month, and to clients of EMC, the loan-servicing company the bank acquired in its takeover of Bear Stearns Cos. Loans to be modified include those on JPMorgan's books and ones in which the bank can obtain investor approval.

It is aimed only at homeowners who ``show a willingness to pay,'' the bank said. ``Customers should continue to make mortgage payments to reflect their intent to honor their commitments.''

JPMorgan said it will also donate or offer a ``substantial discount'' on 500 homes to community groups in order to stabilize local markets.

``We thought now was the right time to come out with what we hope is an industry-leading way to deal with this problem that's affecting all of us,'' Scharf said in an interview.

A total of 765,558 U.S. properties got a default notice, were warned of a pending auction or were foreclosed on in the third quarter, the most since records began in January 2005, according to Irvine, California-based RealtyTrac, which sells default data.

Home prices in 20 U.S. metropolitan areas fell in July at the fastest pace on record, and sales of previously owned homes in August were 32 percent below the peak reached in September 2005.

The state of the U.S. economy has become a key issue in the presidential race between Democratic Senator Barack Obama of Illinois and Arizona Senator John McCain, a Republican.

Obama supports an economic stimulus plan to boost the economy, while McCain wants the government to purchase troubled mortgages.

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