JPMorgan Meets WaMu Homeowners, Face to Face

Three cheers for JPMorgan (JPM)! I recently wrote "Banks Need to Show Respect to Delinquent Homeowners," complaining that Wells Fargo (WFC) was using third party, non-profit organizations to assist in mortgage modifications, instead of dealing directly with its customers. The courts forced Bank of America (BAC) to deal directly with Countrywide (CFC) mortgagees and FDIC Chairwoman Sheila Bair has led the way with IndyMac Federal Bank. Now, Bloomberg is reporting that JPMorgan will deal directly with Washington Mutual’s delinquent homeowners.

It is only fitting that JPMorgan shows deference to Bair when the FDIC gifted it with Washington Mutual (WM) the bank, without the excess baggage and debt of WaMu the bank holding company. Bair has been far more vocal in demanding social responsibility and accountability from their bank merger beneficiaries than either Treasury Secretary Paulson or Federal Reserve Chairman Bernanke. JPMorgan CEO Jamie Dimon has shown better political acuity than his mega bank colleagues have. Dimon has already taken his WaMu markdowns and has no need to hide behind HOPE NOW.

JPMorgan is establishing 24 counseling centers to assist WaMu customers face-to-face in high delinquency areas. The two-year program is expected to modify $70B in mortgages for 400,000 families. JPMorgan claims it has already modified $40B in mortgages for 250,000 families. It will also donate or substantially discount 500 (of what are probably worthless) homes to community groups.

The program is limited to WaMu customers “showing willingness to pay” that “intend to honor their commitments.” WaMu’s “Need Help with Your Mortgage?” webpage has the “Borrower Assistance Form” where customers can explain their circumstances. In homage to the Paulson-Bernanke team’s love of the opaque, JPMorgan does not reveal its negotiating guidelines. The customer does not know in advance the rules of this game, which is demeaning. In this case, JPMorgan is coming up short of Bair at IndyMac.

Disclosure: Author is long BAC and WFC.

Comments

[eternitus:]

I think it's a good move not leaking the "rules of the game." That way, it's impossible for deadbeat borrowers (if we're honest with ourselves, that's what they are) to game he system.

This crisis was caused by house prices that were and are too high and deadbeat owners of overpriced houses not paying their bills. Helping these people will not stop the slide in house prices any more than Advil will help a brain tumor. The foreclosures are a symptom of unrealistically high housing prices, not the cause of their decline.

The more quickly prices adjust and the market clears, the better off we'll be.

2008 Nov 03 10:39 AM

[dixie:]

Now, if only JPM and Dimon and the FDIC and Bair would do right to WM shareholders, then we could say, "case closed."

The truth is, WM shareholders were not consulted nor approved of their, "gift" to JPM as you correctly state it.

Shall we hold our breath?

2008 Nov 03 10:46 AM

[sumosama:]

Uh, I think her name is Blair...

I agree...WM shareholders got hosed. (Like me!!!)

2008 Nov 04 12:14 PM

[Kinabalu:]

"Bair has been far more vocal in demanding social responsibility and accountability from their bank merger beneficiaries than either Treasury Secretary Paulson or Federal Reserve Chairman Bernanke"

"The customer does not know in advance the rules of this game, which is demeaning"

Bair was so good at undercutting the WM & WB negotiations with potential acquirors that you want her to do the same with mortgage delinquents around the country. Her conduct in those two takeovers was deplorable, and now you give her accolades for "social responsibility"?

Why don't you think about the moral hazard created by telling homeowners that if they go delinquent on their mortgage they will get a better deal. JPMorgan has the right idea by limiting the program to mortgagees who “intend to honor their commitments.” Sheila Bairs social responsibility is a political fiction.

2008 Nov 04 12:25 PM