Big Banks Rebel Against Push to Help Struggling Homeowners
by James R. Hagerty
Some big U.S. banks are pushing back against the idea that they should slash mortgage balances for millions of troubled borrowers.
In written testimony prepared for a hearing in Washington Tuesday of the House Financial Services Committee, some of the nation's top mortgage lenders warned of the risks of relying heavily on forgiving principal as a means of averting foreclosures and argued for concentrating mainly on other methods, such as reducing interest rates.
That may set up a clash with Rep. Barney Frank, chairman of the committee, and other lawmakers eager for more aggressive action to prevent foreclosures. In a letter last month to four big banks, Rep. Frank, a Massachusetts Democrat, argued that "to save homes on a large scale, we must move past temporary modifications in interest rates or terms and focus on permanent principal reductions that result in truly sustainable mortgages."
The Obama administration recently announced plans to put somewhat more emphasis on reducing principal in its foreclosure-prevention program.
In their testimony, executives from Bank of America Corp., Wells Fargo & Co., J.P. Morgan Chase & Co. and Citigroup Inc. said reducing principal makes sense for some borrowers with high risk loans. But some of the executives also stressed the risk that principal reductions for some borrowers would lead many others to demand the same treatment.
More than 11 million households are underwater, owing more on their mortgages than the current value of the home, estimates First American CoreLogic, a data provider.
To write down loans enough to bring those debts down to no more than the home values would cost $700 billion to $900 billion, J.P. Morgan Chase estimated in its testimony. That would include costs of $150 billion to the Federal Housing Administration and government-controlled mortgage investors Fannie Mae and Freddie Mac, the bank said.
J.P. Morgan also said broad-based principal reductions could raise costs for borrowers if mortgage investors demand more interest to compensate for that risk. Borrowers probably would have to increase down payments, and credit standards would tighten further, the bank said.
Wells Fargo said principal forgiveness "is not an across-the-board solution" and "needs to be used in a very careful manner." Bank of America said that it supports principal reductions for some customers whose debts are high in relation to their home values and who face financial hardships but that "solutions must balance the interests of the customer and the (mortgage) investor."
by James R. Hagerty
Some big U.S. banks are pushing back against the idea that they should slash mortgage balances for millions of troubled borrowers.
In written testimony prepared for a hearing in Washington Tuesday of the House Financial Services Committee, some of the nation's top mortgage lenders warned of the risks of relying heavily on forgiving principal as a means of averting foreclosures and argued for concentrating mainly on other methods, such as reducing interest rates.
That may set up a clash with Rep. Barney Frank, chairman of the committee, and other lawmakers eager for more aggressive action to prevent foreclosures. In a letter last month to four big banks, Rep. Frank, a Massachusetts Democrat, argued that "to save homes on a large scale, we must move past temporary modifications in interest rates or terms and focus on permanent principal reductions that result in truly sustainable mortgages."
The Obama administration recently announced plans to put somewhat more emphasis on reducing principal in its foreclosure-prevention program.
In their testimony, executives from Bank of America Corp., Wells Fargo & Co., J.P. Morgan Chase & Co. and Citigroup Inc. said reducing principal makes sense for some borrowers with high risk loans. But some of the executives also stressed the risk that principal reductions for some borrowers would lead many others to demand the same treatment.
More than 11 million households are underwater, owing more on their mortgages than the current value of the home, estimates First American CoreLogic, a data provider.
To write down loans enough to bring those debts down to no more than the home values would cost $700 billion to $900 billion, J.P. Morgan Chase estimated in its testimony. That would include costs of $150 billion to the Federal Housing Administration and government-controlled mortgage investors Fannie Mae and Freddie Mac, the bank said.
J.P. Morgan also said broad-based principal reductions could raise costs for borrowers if mortgage investors demand more interest to compensate for that risk. Borrowers probably would have to increase down payments, and credit standards would tighten further, the bank said.
Wells Fargo said principal forgiveness "is not an across-the-board solution" and "needs to be used in a very careful manner." Bank of America said that it supports principal reductions for some customers whose debts are high in relation to their home values and who face financial hardships but that "solutions must balance the interests of the customer and the (mortgage) investor."
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