Large Banks Modify Loan Payment Terms to Avert Foreclosures
November 7th, 2008 by 
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At least three large banks in the U.S. have announced their plans to stop the massive increase in home foreclosures by altering their mortgage loan terms.
In October of this year, Bank of America committed to reduce the monthly installments to be paid by 400,000 mortgage borrowers serviced by Countrywide Financial which it had acquired. It also agreed to make changes in its lending practices in 11 states and to reduce the balance of some mortgages.
A few weeks later, JPMorgan Chase also announced its decision to head off the soaring number of foreclosed homes and to help distressed borrowers by reducing interest rates on their mortgages and by reducing their loan principal on a temporary basis. Chase’s executives hope to lower homeowners’ monthly amortizations to about one-third of their disposable incomes.
According to Charlie Scharf, chief of Chase’s retail financial operations, the initiative will not only help borrowers, but it will also cut the bank’s expected losses from foreclosure paperwork and procedures and from the sale of repossessed houses. Since 2007, Chase has already renegotiated 250,000 loans with borrowers.
Mr. Scharf also said that loan renegotiation would also be offered to borrowers who are on the verge of defaulting. At-risk borrowers could take advantage of rates that are as low as two percent and of options that would lower their loan balances.
Chase, however, clarifies that the loan renegotiation would only apply to mortgage loans that it owns and not to mortgages linked to mortgage-backed securities and bond investors.
Another large bank which has started helping its troubled customers is HSBC. It has already alleviated the situation of almost a quarter of its subprime borrowers by reconstituting their loans.
Chase announced that it will suspend foreclosures for at least three months while it establishes new loan policies, including policies for Bear Stearns and Washington Mutual which it also acquired in 2008.
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