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Will the new Administration finally use stimulus money to directly benefit Americans in foreclosure? While details are not yet available, signs of an impending government intervention in foreclosure prevention are giving major lenders great pause.
Lawmakers in a congressional hearing earlier this week asked the executives of some of the nation’s largest banks to institute a moratorium on foreclosures until the details of a revamped government bailout effort are announced.
At the bequest of the chairman of the House Financial Services Committee, JP Morgan Chase (JPM) and Citigroup Inc. (C) have agreed to weeks-long moratoriums on foreclosures as the government works on a financial stability plan slated to include billions of dollars aimed at keeping people in their homes.
“We will not add to the foreclosure process any new owner-occupied residential loans that are owned and serviced by JPMorgan Chase,” the company’s Chief Executive Jamie Dimon said in a Feb. 12 letter to Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee. The moratorium on new foreclosure actions would remain in effect through March 6 and is similar to a 90-day foreclosure freeze JPMorgan announced Oct. 31.”We believe three weeks is adequate time for the Treasury to announce – and for us to implement – a new plan,” said Dimon.
Following suit, Citigroup said it would place a moratorium on foreclosures for all Citi-owned first mortgage loans that are on principal residences and on loans for which understandings with investors have been reached. The moratorium is scheduled to last until March 12th unless the government finalizes a loan- modification program before that date.
On Tuesday, U.S. Treasury Secretary Timothy Geithner unveiled the outlines of that effort and said details would be released later. Geithner has been meeting with other members of President Barack Obama’s economic team and the Secretary of Housing and Urban Development to discuss foreclosure prevention.
Government-controlled mortgage finance companies Fannie Mae and Freddie Mac suspended foreclosure sales during the winter holidays and have halted evictions from foreclosed properties until next month. And earlier this week, John Reich, director of the Office of Thrift Supervision, urged the more than 800 thrift institutions nationwide to do the same.
Meanwhile, the administration is considering spending taxpayer dollars to cut monthly payments for homeowners on the verge of foreclosure.
Still, deciding who would qualify would be a challenge, especially as foreclosures continue to soar. More than 274,000 U.S. households received at least one foreclosure-related notice last month, according to RealtyTrac Inc.
The administration also is expected to back a push in Congress — but opposed by the mortgage industry — to let bankruptcy judges alter the terms of primary home loans. Earlier this week, Obama said it “makes no sense” that judges are not allowed to do so. The mortgage industry argues that this prohibition allows lenders to charge lower rates.
Top executives from these firms endured tough questioning before the House Financial Services Committee earlier this week, including about whether the banks have done enough to help struggling homeowners. In public statements and letters to the committee released today, Citigroup and J.P. Morgan sought to show the extent of their efforts.
How the new Administration’s policies will ultimately affect the American consumer is yet to be seen. For now, a moratorium on foreclosures at two of the largest lenders is, at least, a temporary blessing.
