Two banks will helpfully keep people in their homes. At least, that will be the party line but let us look a bit deeper than that.
Sharia compliant Citi will modify $20 billion in home loans in a new program aimed at homeowners who haven't defaulted yet which could help 130,000 mortgage borrowers stay in their homes. This sounds all well and good.
The news follows similar initiatives announced by other banks. In particular I was interested to discover that JPMorgan Chase (JPM, Fortune 500) was another bank which like Citi heralded an enhanced housing rescue effort. JPMorgan Chase's goal is to rescue 400,000 borrowers.
The Citi (C, Fortune 500) effort, dubbed the Citi Homeownership Assistance Program, targets 500,000 Citi borrowers. CitiMortgages CEO Sanjiv Das said he expects that more than a quarter of these people will seek assistance, with mortgages worth about $20 billion.
For borrowers who have yet to default, Citi will freeze or reduce interest rates, extend the lifetime of the loan, or even reduce the loan principal. This lowering of the interest rate is typical of Islamic financing.
Since the banks do not know how well they can do they will need the cooperation of the government. The bottom line is that the bank programs won't be nearly as effective as any massive foreclosure prevention effort that may yet be implemented by the U.S. government.
And there is a possibility that such a program may yet emerge. Congress already enacted its Hope for Homeowners initiative, which will allow borrowers to refinance their mortgages into loans backed by the Federal Housing Authority. Now there is talk of a new $50 billion plan that could bail out as many as 3 million homeowners.
The selling point is that the bank programs do not cost the taxpayers anything so who could object?
JPMorgan Chase expands their housing rescue plan and will put a moratorium on foreclosures until its new program can be implemented in about 90 days. The bank will hire and train more staff to handle the added caseload that the plan will generate. JP Morgan Chase expects to process 400,000 families who will keep their homes during the next two years by working out $70 billion worth of loans. To handle the challenge, the bank will add 300 new counselors, for a total of 2,500, and opening 24 new regional counseling centers.
In the financial meltdown there are companies that are prospering and adding staff to handle the additional load. To be successful in their endeavor though, they will need the assistance of someone in the government, someone on the inside, someone whose campaign they supported with significant donations.
I am just speculating but I wonder if both Citi and JPMorgan Chase have found their man in Washington D.C.
Actually, both companies were noted in a recent
7 November blog post documenting just how much money they contributed to the President-elect:
JPMorgan Chase & Co. $581,460
JP Morgan Chase & Co is one of the nation’s leading financial services firms, offering commercial and consumer banking and credit services, securities brokering and financial consulting. Through its subsidiary Chase Bank, the company is one of the top consumer credit card issuers in the country. As expected, the firm has lobbied heavily on legislation that would affect the nation’s financial industry, including bankruptcy reform and banking deregulation. In 2002, federal investigators launched a probe into the firm’s relationship with former energy giant Enron. Prior to the energy firm’s collapse, JP Morgan Chase had been one of the company’s biggest financial backers.
Citigroup Inc. $581,216
Citigroup is the world’s second largest financial services firm, with $1 trillion in assets. One of the company’s subsidiaries is brokerage firm Salomon Smith Barney, which has been plagued with lawsuits and government investigations into its financing of bankrupt Enron and ailing WorldCom. In 1998, Citigroup’s lobbying helped repeal a federal law that prevented banks from getting into other businesses, allowing the company to acquire an insurance firm. Citigroup continues to lobby on a number of issues, including financial privacy, bankruptcy reform and terrorism reinsurance.
People can stay in their homes, thanks to the banks, and to their man in Washington, bought and paid for.