Updated from 3:32 p.m. ESTJPMorgan Chase ( JPM), Wells Fargo ( WFC) and Citigroup ( C) were among the banks to say on Wednesday that they strongly support President Barack Obama's plan to modify mortgages in order to prevent another wave of foreclosures. The banks hailed the administration's two-pronged attack, called the " Making Home Affordable" program, aimed at keeping struggling but responsible borrowers in their homes. The first part of the fix seeks to help as many as 4 million Americans by modifying monthly loans payments to be no more than 31% of the borrower's income. The second half of the plan is expected to help up to 5 million homeowners that have mortgages with Freddie Mac ( FRE) or Fannie Mae ( FNM) by allowing them to refinance into lower-cost loans. Wells Fargo said it fully supports and will implement the administration's plan to prevent foreclosures. The lender said it will offer the loan modification program for its own loans and loans it services for Fannie Mae and Freddie Mac, as well as for all other investors "unless their servicing contracts prohibit it." Wells Fargo said it will also offer the administration plan's refinancing options available to customers with Fannie Mae and Freddie Mac loans. Mike Heid, co-president of Wells Fargo Home Mortgage, called the housing plan "thoughtful and comprehensive" and said it did a great job at targeting the complex problems the U.S. faces. "Importantly, it helps customers facing true financial hardships while guarding against moral hazard," Heid said in a statement. "Wells Fargo has long advocated a standardized mortgage modification process, and we hope all investors will align with the plan so that more families can reach affordable mortgage payments. That, in and of itself, will go a long way toward stabilizing our economy for the benefit of all Americans."
Not to be outdone, Bank of America ( BAC) took it one step further. Not only did it say it would it participate in the program, the Charlotte, N.C., bank said it will also extend its foreclosure sale moratorium for borrowers that potentially qualify for help under the plan while the company becomes operationally ready. JPMorgan CEO Jamie Dimon offered similar praise to Obama's plan, saying it appropriately balances the interest of homeowners, mortgage servicers and investors. "JPMorgan Chase believes that this program, along with the fiscal stimulus plan and the
Term Auction Loan Facility, or TALF, program, are all strong steps to improve both the economy and the financial system and to help those who are deserving and in need of assistance," Dimon said in a statement. Citi, which like JPMorgan said last month that it would temporarily halt new foreclosures on mortgages they hold until the Obama administration finalized a plan, said it was "confident" the plan will "streamline servicers' ability to make loan modifications more effectively and efficiently." Freddie Mac Chairman John Koskinen praised the housing plan and said his company's resources are aligned to make the program a success. "We look forward to working with lenders, servicers, nonprofits, the administration, and the Federal Housing Finance Agency, over the coming months as this vital initiative is fully implemented and injects new stability into the nation's housing market," Koskinen said in a statement. However, nearly all involved acknowledged that the plan by itself is neither a quick fix nor a guarantee for those borrowers currently in dire straits. During a conference call, a senior Treasury Department official said the program is "not intended to prevent every foreclosure or to help every homeowner. It's really targeted at responsible homeowners."
For instance, the program has strict stipulations for those borrowers looking to refinance or modify their loan payments. In order to qualify for the modification aspect of the program, a borrower must have secured their mortgage prior to the start of 2009, the primary mortgage must be below $729,750, and it will apply only to owner-occupied primary residences. Additionally, the borrower will need to document their income with tax returns and pay stubs, and must sign an affidavit stating their financial hardship. Those in households where debt totals 55% or more of their income must attend debt counseling. The senior Treasury official also noted that the modification program will only be extended to those borrowers with the willingness and the ability to pay an affordable mortgage and "will not help those who borrowed far more than the house was worth or more than they could ever hope to repay." "There is no silver bullet," Dimon said. "These mortgage modifications are economically and morally the right thing to do for individual customers. It is the respectful way in which we all would want to be treated. We will work hard to incorporate the new criteria into our own loan modification process to quickly help customers, and we urge all to participate in this plan as soon as possible." While supportive of the plan, Dimon was also quick to criticize the plan currently floating its way through Congress that would give bankruptcy judges more power to adjust mortgages in court.
Banks have lashed out at the plan, arguing that bankruptcy court mortgage modifications would bring about massive costs that would inevitably be passed along to borrowers at higher fees and interest rates. The bill will be voted on by the House of Representatives as early as Thursday. "We believe
the Making Home Affordable plan's completeness eliminates the need for judicial modification in bankruptcy, but if legislated, judicial modifications should be consistent with this plan and only for borrowers who couldn't qualify or were not offered a modification," Dimon said. Wells Fargo shares were dropping 9.5% to $9.66. Shares of JPMorgan were lately down 8.1% to $19.30. Meanwhile, Freddie Mac was jumping 5.1% to 41 cents and Fannie Mae was adding 7.9% to 41 cents. BofA shares recently were up 1.4% to $3.59. Citi shares were off 7.4% to $1.13.