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A Bitter Pill For Mortgage Borrowers

Stocks in this article: BAC JPM WFC C FMCC.OB FMNA.OB

"My view is this will be manageable over time, but it has cost us a lot of money," said Moynihan, pointing to Bank of America's remaining $8 billion in mortgage reserves.

Yet at the same time, BofA is seeing a high volume of new originations to affluent borrowers, with attractive spreads and few defaults. While there are still issues with the mortgage book, the bank was able to release $1.45 billion in reserves from its overall loan portfolio last quarter.

Dimon also indicated that the mortgage-mess is far from over. He noted that the bulk of home-equity loan charge-offs are yet to come, and predicted the industry may experience repurchase requests from Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) through 2013.

"When I look at all the mortgage stuff, we have kind of got our hands around it," said Dimon. "It is taking a while and to me, when there is a recovery, unemployment comes down, this will hopefully get better."

For the most troubled borrowers, though, things have gotten worse.

Nearly 630,000 borrowers who accepted HAMP modifications have canceled them - far more than 422,000 who stuck with permanent workout plans. While 45% have moved into alternative modifications offered by servicers, about 17% have faced foreclosure, short sales or deed-in-lieu transactions. Another 30,000 borrowers were either denied a modification or canceled the program because they filed for bankruptcy.

Fierce economic challenges have rendered many mortgage solutions Band-Aids for far bigger issues.

Some borrowers have seen income levels drop because of the extended period of unusually high unemployment. Others who bought at the height of the market are stuck with loans that are worth much more than current values - effectively making modifications unfeasible. In the worst-hit states, 30% to over 50% of homes are underwater.

Foreclosures have recently started to tick up again, with 338,836 properties receiving notices last month , according to RealtyTrac. Filings rose at a monthly rate of 4% in both July and August. Over 5 million homes have received notices since "Making Home Affordable" first got off the ground in the spring of 2009. The trend seems to ebb and flow with various federal initiatives and their expiration.

The government has tried to heap blame on the banking industry for delays in helping homeowners - much of it deserved. Yet it also broadcasts the 1.3 million HAMP trial modifications that have been extended without pointing out the many that have failed. And with taxpayers starting to notice the gigantic losses piling up at Fannie and Freddie, the government is also trying to push back billions of dollars' worth of mortgage debt to the servicers from whence they came.

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