The nation’s biggest banks are championing a plan that would defer principal payments for troubled borrowers who are “underwater” on their mortgages rather than reducing the loans.
Big banks, including JPMorgan Chase, are discussing loan modifications as part of settlement talks with federal regulators and state attorneys general over shoddy mortgage practices.
That stance is miles away from the current Obama administration’s proposal, which would penalize banks for a robo-signing fiasco that has led to a raft of improper foreclosures while introducing measures to jumpstart the housing market.
The White House is pushing banks that maintain loan-servicing platforms, including JPMorgan, Bank of America, Wells Fargo and Citigroup, to cough up $20 billion in fines, The Wall Street Journal reported yesterday.
As part of the settlement, they also want a commitment from banks to reduce payments for borrowers who owe more on their homes than they are worth.
“Everybody’s negotiating like mad,” said Karen Shaw Petrou, a managing partner at consulting firm Federal Financial Analytics. “However, there is no one true light in these mortgage-settlement [discussions]. There are competing objectives here and competing interests.”
Regulators are pushing to reach a settlement in the next few weeks, according to sources.
Big bank mortgage servicers would rather homeowners defer payments for a period of time until they can afford to meet their mortgage payments and the housing market regains its footing.
They say reducing principal payments would force them to write down tens of billions of debt — and would only encourage homeowners to become deadbeats.