J.P. Morgan Expands Loan Effort

By ROBIN SIDEL One of nation's biggest lenders has embarked on the most ambitious effort to date to lower monthly mortgage payments for borrowers whose loans aren't owned by the bank. J.P. Morgan Chase & Co. is expanding its two-month-old program to modify mortgages to include not only mortgages the bank owns but also more than $1 trillion of loans the bank sold to investors. Faced with political pressure and ballooning losses, banks are racing to modify million of loans by reducing interest rates or lengthening terms. The banks are trying to keep borrowers in their homes and limit their own losses associated with foreclosures. J.P. Morgan's effort comes as lawmakers are weighing a Senate bill that would let judges set new repayment terms for mortgage holders in bankruptcy. Although Citigroup Inc. supports the legislation, some big banks are wary about the potential for judges to set new loan terms. It isn't clear whether all investors who own the loans will get on board with the bank's plan. Bank of America Corp. ran into opposition from some investors last year when it began an $8.4 billion home-loan-modification program as part of a settlement against predatory-lending charges at its Countrywide Financial Corp. unit. Like other banks, J.P. Morgan's mortgage business services loans on the bank's books, as well as those sold off to investors, or securitized. Securitized mortgages represent more than three-quarters of the $1.5 trillion in mortgages that J.P. Morgan services. Charles Scharf In October, J.P. Morgan launched a plan to modify the terms of $70 billion in mortgages it owns for borrowers behind on payments or showing signs they could soon slip into delinquency. "From the moment we made our last announcement, we have been working as diligently as we can to expand it to all loans because we think it's the right thing to do," said Charles Scharf, who runs J.P. Morgan's retail operations. In formulating the plan, J.P. Morgan said it held discussions with about a dozen major trustees that represent investors of securitized mortgages. In some cases, J.P. Morgan needs the approval of trustees before it can modify the mortgages. The bank said it believes it can legally modify the "vast majority" of investor-owned mortgages and will seek investor approval in other cases. "The trustees and investors have been extraordinarily cooperative in getting to the point where we are allowed to do these modifications," Mr. Scharf said. Investors' resistance could stem from concern that they would earn a smaller return than expected and that they shouldn't bear the brunt of poor underwriting decisions made by the bank. J.P. Morgan, however, is betting that investors would rather see that the bank overhaul terms of the mortgages rather than see them slide into foreclosure or have a bankruptcy judge revise the terms. J.P. Morgan is moving forward with the initial program for home loans that are owned by the bank. It plans to open 24 centers by March. The bank also said it has delayed starting foreclosures on more than $22 billion of bank-owned mortgages, representing more than 80,000 homeowners, so it could review the loans for possible modification.