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Top banking industry executives are skeptical about helping troubled borrowers by forgiving a portion of their debt.
The executives told lawmakers on Tuesday they are reducing the amount that troubled borrowers owe on their home loans only in limited cases. That's because consumers who are paying their mortgages on time are likely to see such reductions as unfair, they said.
Such programs "could raise issues of fairness," said Sanjiv Das, Citigroup's top mortgage executive, who appeared in front of the House Financial Services committee with top executives from Bank of America, Wells Fargo & Co. and JPMorgan Chase.
David Lowman, chief executive of Chase's mortgage business, told lawmakers that large-scale mortgage principal reduction "could be harmful to consumers, investors and future mortgage market conditions."
Chase estimates that reducing home loan balances so that no homeowners would owe more than the value of their homes would cost up to $900 billion, with $150 billion of that borne by the government.
Many homeowners aren't satisfied. After the hearing was over, dozens of activists from the Boston-based Neighborhood Assistance Corp. of America chased Lowman through the marble-floored hallways of the Rayburn House Office Building, pressing him to do more to help troubled homeowners.
He did not respond to their requests for a meeting and eventually left the building with the assistance of police.
Homeowners complained that the bank has been difficult to deal with. Charandra Smith of Prince George's County, Md., said in an interview that her home she bought in 2007 is now worth about $300,000 -- a decline of $170,000 from her purchase price. Chase, she said, has been unwilling to help.
"I'm not asking (Lowman) to do anything extraordinary. I want my home, I intend to stay in my home, but make it reasonable," she said. "If I sell my home, I lose everything."
A Chase spokesman declined to comment on the activist group.
The four mortgage companies represented at the hearing are the largest in the country and have come under fire for not doing enough to help borrowers as part of the Obama administration's $75 billion mortgage relief program, which has failed to make a big dent in the problem.
Through March, more than 230,000 homeowners had completed loan modifications. That's about 21 percent of the 1.1 million borrowers who began the program over the past year, the Treasury Department said late Tuesday.
Last month, the administration expanded the program, launching a plan to reduce the amount some troubled borrowers owe on their home loans and give jobless homeowners a temporary break. But the details of those programs are expected to take months to work out.
President Barack Obama's housing secretary, Shaun Donovan, said in a speech to a group of mortgage bankers Tuesday afternoon that administration did not foresee how much effort it would take for the mortgage industry to launch the program.
Many mortgage companies, he said, "were too slow to make the investments in systems and staff needed" to put the program in place. But he noted that many families are getting relief.
Republicans, however, say the Obama administration should abandon the effort and focus on creating jobs.
"The market needs to find its own footing free of government intervention and manipulation so we can revive our economy and get on with a full housing market recovery," said Rep. Spencer Bachus of Alabama, the committee's senior Republican.
At the House hearing, Bank of America executives took a more enthusiastic stance toward mortgage forgiveness than its competitors. Last month, the Charlotte, N.C.-based banking giant said it would forgive a portion of the mortgage balances for distressed homeowners with the most problematic loans.
The Obama administration's new plan, however, is expected to be modest in its impact. Moody's Analytics forecasts that the new programs will help about 350,000 homeowners avoid foreclosure this year. But 1.9 million homeowners are still expected to lose their homes.
While awaiting further details on the plan, borrowers should continue with loan modifications, said Jack Schakett, Bank of America's credit loss mitigation strategies executive. He said BofA will re-evaluate borrowers for the new assistance plan once it becomes available.
"What we don't want to do is to have customers sitting around trying to stall, hoping for that better offer," he said in an interview.
The four big banks at Tuesday's hearing are also the main holders of second mortgages such as home equity loans. During the housing boom, business boomed for so-called "piggyback" mortgages -- second loans that allowed consumers to make a little or no down payment.
These loans may be worth little or nothing, but banks are reluctant to release their claims or reduce the value of those loans on their books.
Complicating matters, many borrowers are choosing to pay their second mortgages ahead of their primary ones. So banks have little incentive to modify those loans as long as homeowners are still paying on time.
The Treasury Department has launched a program to modify second mortgages. That program was delayed for months but the four big banks signed on after pressure from the Obama administration and lawmakers.