JPMorgan Chase (JPM) went from fast-tracking foreclosures to rubber stamping and pre-approving some borrowers for refinances and even principal reduction.
The five largest mortgage servicers signed a $25 billion deal with federal prosecutors and 49 state attorneys general in March to settle foreclosure abuses and documentation problems in the past. Chase agreed to provide roughly $4.2 billion in relief to homeowners under the agreement, including principal write-downs, modifications and refinances for underwater borrowers.
Servicers receive more credit for granting the relief within one year, according to the terms of the settlement.
But since the foreclosure crisis first struck five years ago, borrowers have grown weary of the documentation black holes at the major banks. Many have spent hours in front of FAX machines, only to be asked for resubmissions or another piece of paperwork.
To provide relief more quickly under the settlement, Chase executives are addressing the borrower fatigue with a letter sent to borrowers notifying them that their loan was refinanced into a new mortgage with a lower interest rate. No documentation was needed. Chase owned the loan.
Borrowers receiving these letters saved an average of $300 per month on their payments, according to a statement from the bank sent to HousingWire.
Chase is sending different letters to other underwater borrowers. All that is required in order for a principal reduction on their loan is a signature sent back with the included self-addressed stamped envelope the bank provides.
Roughly half of the borrowers targeted by most major servicers for principal write-down consideration agree to the deal. But nearly all of the borrowers who received a letter from Chase, sent it back with a signature, according to the bank.
"Chase is taking a proactive approach to helping homeowners. We are automatically reducing interest rates for eligible customers who are current on their mortgage payment, saving them hundreds of dollars each month," a Chase spokeswoman said. "For many individuals and families who are struggling with their mortgage, we are lowering their payments by sending them pre-qualified modification offers, which may include principal forgiveness."
A spokeswoman for Joseph Smith, the monitor of the servicing settlement, declined to comment on the Chase letters.
Marietta Rodriguez, national director of homeownership and lending at NeighborWorks America, a nonprofit housing counseling group, said it's understandable how fatigued borrowers have become.
"There is a lot of information on a lot of programs being messaged to borrowers right now. It takes a very sophisticated borrower to sort through all the news and solicitations to determine what they're being offered and what is an appropriate next step," Rodriguez said.
More servicers are using principal reduction for borrowers who owe more on their mortgage than their house is worth. Roughly 47% of all modifications provided in 2012 included a cut to principal, said Chase securities analysts in a report issued last week.
Executives at Ocwen Financial Corp. (OCN), the largest subprime lender in the country, said in a conference call with investors last week that two-thirds of its modifications now include a write-down.
Chase analysts said the average amount of principal forgiven on mortgages securitized into private-label bonds was $90,000 so far in 2012, up from $66,000 last year.
Not everyone is convinced on the method. The Federal Housing Finance Agency last week refused to allow such write-downs on Fannie Mae and Freddie Mac loans.
Roy Oppenheim, a foreclosure defense attorney operating in Florida, said in an interview that the Chase letters do not surprise him. The foreclosure process in Florida is so costly, backlogged and uncertain that many banks are looking for "a less tortuous method."
This includes even reducing principal and refinancing a risky underwater borrower when they can.
"There are even bigger problems that lie ahead if they go with the foreclosure," Oppenheim said.