President Obama unveiled his own agenda regarding foreclosure prevention through government assistance and more aggressive loan modification programs. Meanwhile, major banks also agreed to be more proactive with foreclosure moratoriums to rescue American homeowners.
Just before President Obama signed the long-awaited stimulus package, and then announced his plans for attacking the foreclosure crisis, major banks including JP Morgan, Citigroup, Bank of America, and Wells Fargo pledged to implement temporary foreclosure moratoriums. Instead of moving forward with foreclosure on many of their borrowers who are in default, the banks agreed to wait until the government has time to unroll its financial stability plan.
Foreclosure prevention initiative
The Obama Administration initiative will spend billions on foreclosure prevention to keep distressed borrowers in their homes. Hopefully, that will stave off the necessity for banks to repossess houses owned by millions of Americans who are immediately at risk without some kind of foreclosure prevention intervention.
In announcing that it would implement the foreclosure moratorium, the CEO of JP Morgan wrote a letter to Congressman Barney Frank, who chairs the House Financial Services Committee. The letter stated that no new foreclosures would be processed for delinquent mortgages on owner-occupied residential properties that are owned and serviced by JP Morgan.
Details of foreclosure moratorium
The foreclosure moratorium policy will stay in effect through March 6th, a date that, unfortunately, is fast approaching. That only gives the Treasury a short window of opportunity to implement its own government assistance or loan modification programs. JP Morgan allowed a similar moratorium last fall, which lasted for 90 days. While many homeowners breathed a sigh of relief to learn that there's a new foreclosure moratorium underway, consumer advocacy groups and debt counselors point out that it won't do much good for most homeowners already in trouble. As soon as the bank's new arrangement expires on March 6th, large numbers of homes will again be headed toward the auction block. Unless the government can create a viable foreclosure prevention plan, or quickly intercede in a powerful way to save homeowners, the temporary reprieve will not really have a major positive impact on the crisis.
Citigroup and Bank of America also issued statements saying that they'll do similar short-term foreclosure moratoriums. Meanwhile, Wells Fargo plans to impose a moratorium on all of the loans it owns and controls, but the bank doesn't actually own most of the loans that it services. Since they're owned by outside investors, the bank needs cooperation and approval from those investors before it can significantly implement loan modifications. The problem with that scenario-where loans are controlled by outside investors-is a big reason why foreclosure prevention efforts of the past haven't worked. Investors typically refuse to go along with loan modifications because they're too costly. In order for foreclosure prevention efforts to work in today's catastrophic environment, it seems, lawmakers will need to take a tough stance and actually force investors to accept losses and financial pain.
