Chase Freezes Foreclosures, Modifies Loan Terms

November 2, 2008 Updated: October 1, 2015
The JP Morgan Chase flag flies near its headquarters in New York. Chase announced that it would modify loan terms and temporarily freeze foreclosures. (DON EMMERT/AFP/Getty Images)
The JP Morgan Chase flag flies near its headquarters in New York. Chase announced that it would modify loan terms and temporarily freeze foreclosures. (DON EMMERT/AFP/Getty Images)

NEW YORK—JPMorgan Chase & Co. announced on Friday that it would freeze all foreclosures for 90 days to set up a new program to restructure home loans and modify terms for struggling borrowers.

In a sign that banks are working aggressively to curb foreclosure rates and get mortgage payments under control, the nation’s largest bank by deposits will modify terms for 400,000 borrowers, for loans totaling $70 billion.

With the new program, Chase will open 24 regional counseling centers in high-delinquency areas to answer questions and talk one-on-one with existing borrowers. In addition, the bank would terminate all “pay option” adjustable-rate mortgage (ARM) loans.

“We feel it is our responsibility to provide additional help to homeowners during these challenging times," said Charlie Scharf, CEO of Chase Retail Financial Services in a statement. "We will work with families who want to save their homes but are struggling to make their payments."

Chase will also extend to program to current Washington Mutual and EMC Mortgage customers. The bank purchased WaMu on Sept. 25, and EMC was a subsidiary of Bear Stearns Co.

The announcement comes on the heels of a $125 billion capital injection program offered by the U.S. Department of the Treasury, the first portion of a $700 billion financial rescue plan recently approved by Congress. Chase received a $25 billion investment from the Treasury.

Chase currently controls around $250 billion in prime mortgages, with $51 billion in pay option ARM loans and another $27 billion in subprime mortgages.

Last month, Bank of America reached a similar deal to assist 400,000 Countrywide customers, albeit by a settlement with 11 state attorneys general.

Tackling Toxic Loans

Perhaps the most welcoming feature of the Chase program is termination of controversial “pay option” ARMs, or loans with negative amortization. Chase inherited such loans from WaMu and EMC.

Offered to thousands of under-qualified borrowers, option ARM holders can elect to defer interest payments for a period of time, by adding the interest onto existing principal.

This means that while making a low minimum payment each month, the loan principal grows on a monthly basis, making such loans particularly risky to homeowners.

Chase said that it plans to offer “pay option” ARM holders a more affordable fixed-rate, 30-year mortgage or a 10-year interest only loan with principal deferral. The bank also announced that it would “offer a substantial discount on or donate 500 homes to community groups or through non-profit or government programs designed to stabilize communities.”

Citigroup, Inc. and Wells Fargo & Co., the two other large mortgage lenders, have been mum about their plans for loan modification.