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Big Banks Object To Forgiving Mortgages

From the Wall Street Journal:

Banks Rebel Against Push to Redo Loans


APRIL 13, 2010

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."

Who do these bankers think they are, talking back to Barney Frank like this? They don’t seem to understand their role in Obama’s America.

They aren’t in business to make money.

They are in business to provide housing and whatever else the government can’t do for us – just yet.

This article was posted by Steve on Tuesday, April 13th, 2010. Comments are currently closed.

13 Responses to “Big Banks Object To Forgiving Mortgages”

  1. mr_bill says:

    So, in short, Bawney Fwank wants to force banks to reduce loan principle because home values have decreased (nevermind that a lot of folks lied to get the loans in the first place). I would like to hear his opinion on the converse of his proposal. Congressman Fwank, should banks be allowed to increase the loan principle if the value of the home increases?

    If one party to a contract wants to modify it, then fine, as long as the other party consents. Gov’t doesn’t need to get into it. Otherwise, let the forclosures happen, the market will deal with it. This incessant meddling with the economy and sidestepping of consequences is an ill wind that blows nobody some good. The last thing we need is Congress getting further into the matter, they have “helped” enough already, we can’t afford any more of their “help.”

  2. GetBackJack says:

    When I owned a mortgage wholesaler in the late 80s early 90s standards were strict, underwriting carried penalties, false claims were punishable by law and down payments had to come from your own pocket.

    Then I saw the drift beginning. And I got out. Everyone else I knew in the business saw the gravy train coming of fast and loose deals and they made incredible fee income. I couldn’t do it. But the volume of shiat passed through to Fannie and Freddie and thence in the secondary markets as securitized graded assets was nothing short of flabbergasting.

    I asked my senator about it, on one of several occasions I had to chat with him informally. His reply was that all he could say is that certain interests were determined to spread home ownership as far as possible, and the cleanup of that fiasco will hide the expense of inflating the dollar. He also mentioned the amount of fee income possible from such matters.

    Congress knew exactly what it was doing.

    Which is why any sane man has to view Congress as a criminal conspiracy against the Constitution and against the citizens upon whom they feed like vampires.

  3. bill says:

    Hey what’s another $600-900 billion to lower ALL house prices across the board. with our mountain of social justice debt being run up, we will hardly notice the additional trillions.

    Our stooge pres is so full of economy wrecking ideas.

  4. NoNeoCommies says:

    Good luck getting Barney the Gay Dinosaur to listen to common sense.
    He is well practiced in ignoring “the little people”: http://www.boston.com/ae/celebrity/more_names/blog/2010/04/barney_frank_gets_a_high-altit.html

  5. proreason says:

    The problem is profits.

    Banks like to make profits on stuff like loans.

    But if there weren’t any profits, we would be in Nirvana.

    Like Soviet Russia.

  6. Right of the People says:

    Gee, could they lower the principle on my mortgage too? I know I’ve made all the payments on time and all that but I really could use the help.

    • proreason says:

      It depends, ROP.

      Are you a deadbeat? gay? black? an illegal alien? a union thug? willing to commit perjury? have a bad credit history?

      If you are, COME ON DOWN!!!

      Others need not apply.

      Something similar actually happened to me. My mortgage company actually contacted me about reducing my interest rate. Mrs. proreason got pretty excited about that, but I had to caution her that we wouldn’t meet the criteria once they found out that we don’t have a criminal background. As usually happens, she scoffed at me.

      Want to guess who was right?

  7. Jessthinks says:

    Right of the People and Proreason, I have to respectfully disagree.
    My husband and I are a situation similar to what this article addresses. We’re needing to move out of state for a job, but our home has depreciated in value by 31% from when we bought it less than 3 years ago. As first time homebuyers, we had no idea what was going on. Everyone said “Buy a house! They never depreciate in value!” so we did. And now we’re screwed. Is it our fault that we bought a home right when the market turned? I like to hope not. Do I feel guilty for buying a home during a time when the real estate market was over inflated and banks were lending money left and right? Not in the least.
    Thankfully, our mortgage lender considers a move out of state for employment to be a hardship. So without having to prove (or as you say, perjure ourselves) unemployment or medical catastrophe, they’re generously forgiving the purchased amount ($220) and what it’s now currently worth ($174). As a result, we might actually be able to sell it.
    We’re white, both employed, have two children under the age of two, have exemplary credit, and have never been late on a payment, and yet we still find ourselves in this horrible mess of an economy. If the banks weren’t being so accommodating to people in similar situations as ours, we would be chained to this house for the rest of our lives. I thank God they’re working with us. (That’s not to say I won’t take it up the butt come next tax time when the “forgiven” amount is considered taxable income!!)

    Sorry for the tirade…Love the blog Steve!

    • Right of the People says:


      First off, welcome to the site.

      You and your husband aren’t the type of people were are railing against here. It’s the deadbeats who never should have considered buying a home to begin with.

      With a lot of them to make matters worse once the real estate market in their area (especially Las Vegas, LA, FLA) skyrocketed they borrowed on the new “equity” in their homes and used it to buy big screen tvs, extravagant furniture, took vacations with the money. Then when the markets crashed the house they paid $200K for then borrowed another $150K in “equity” on was now only worth $130K like it should have been all along. Suddenly they’re “under water” to the tune of $220K with now way of recouping the loss.

      These are the people who want their principle reduced. I have first hand knowledge of one of these deadbeats, he’s my brother-in-law. Moved to Fort Lauderdale, bought a 6000 sq. ft. house for him, my sister and one niece complete with pool, huge deck, etc for cheap with nothing down. The market went up and up and they took an equity loan and bought tons of toys, jet ski, quad-runner, etc. Now that the market is in the toilet their house is valued at about 25% of what they owe and he recently got switched from 40 to only 25 hours a week at his job and they’re hurting.

      I’m sure there are more than a few innocent folks out there who have followed all the rules and still have been hurt by the bad market but the fools far outweigh them. It’s the fools we can’t tolerate.

    • proreason says:


      I nearly went bankrupt in real estate in the 80’s because houses declined in value where I lived. Oil crashed. S&L crash. Condo crash. Reagen tax changes slaughtered small investors. Houses fell by 30% on the tax roles in one year.

      No bailout for me. It took me 20 years to recover. Most of that time I worked my ass off on a regular job, and weekends and nights struggling to make payments.

      My lifestyle has been reduced 50% since 2008 because of the of the rigged Stock Market crash and I am now more likely to go bankrupt than not. My wife is handicapped by the way. And last year she had major back surgery that cost deep 6 figures.

      That’s in addition to the multiple layoffs, lost opportunities, investment scams, robberies, and other normal things that happen in one’s life.

      Please explain to me why should I bail you out?

      Or anyone else.

  8. Jessthinks says:

    Right of the PPL: Thanks for the warm welcome and explanation! I feel for your BIL. The holidays must really suck. :)

    ProReason: I want to get bailed out because I’ve watched my tax dollars get sucked out of my paycheck until it’s dry to pay for the medicaid, welfare, and everything else that EVERYONE but me and my family seems to be getting a free ride on. Call me selfish, but I’m sick of watching my money go to benefit (seemingly everyone) but me. Maybe a little background…I live in Minneapolis and so am inundated with Somali’s. I mean, I’m surrounded with this stuff.

    But to more specifically answer your question: You should most definitely NOT bail me out. But the bank sure should, since it was allotted a huge amount of money by the government recently which was purely funded by my (and your) tax dollars. I understand it’s one big vicious cycle. But my Lord…we’re trying to do everything right by NOT milking the system and seem to be struggling the worst.
    I’m sorry to hear about your wife and the serious economic hardships you’ve gone through in the last 30 years. Tell me how you made it through. Tell me there will be an end to this. I hope your wife is back to 100%.

    • proreason says:

      “Tell me how you made it through” I don’t quit, ever. And I believe in myself.

      “Tell me there will be an end to this” There isn’t. Learn to live with it. We have it easy compared to our parents and grandparents who made it through the Great Depression, and our uncles and brothers who left it in Korea, Viet Nam, Iraq and Afghanistan. It won’t end. It’s life. It’s frustrating now because the scams are so obvious with modern communications. I recommend you vote the criminals out of office and keep on working.

      “Call me selfish, but I’m sick of watching my money go to benefit (seemingly everyone) but me” I don’t have an issue with people making an effort to get what they can from the system. I do it and I expect others to as well. But if that’s what you are depending on, then you aren’t any different than the people who don’t do anything else. Sorry to be harsh, but that’s the way I see it.

      I suspect your values are better than average but you are gradually succumbing to the temptations of the left. They do it deliberately you know.

  9. U NO HOO says:

    I can handle hard knocks but the knife in the back is unbearable.

    Reading this Obama?

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