Nationwide, 7.3 million American homeowners are expected to default on their mortgages between 2008 and 2010. Knowing this, JPMorgan Chase and Bank of America have announced broad sweeping plans to help homeowners who are on the verge of foreclosure.
JPMorgan Chase plans to change the terms of $70 billion in mortgages for homeowners who are behind in their payments. The program is expected to impact approximately 400,000 homeowners or just under 5 percent of all the mortgages held by the bank.
Bank of America, under a settlement offer with 11 states, has agreed to permanently write down the amounts owed on approximately 400,000 mortgages.
So why are the banks doing this? Several believe that they can best improve the value of their loans by modifying the terms of existing loans instead of using foreclosures. That's probably not too surprising as both parties tend to lose when a house is foreclosed. The homeowner obviously loses their home, and, generally, the bank doesn't receive as much as it otherwise could for the home. Plus, the bank incurs a lot of legal fees when it follows the foreclosure route.
To learn more about the programs offered by these banks and some others, check out this New York Times article.
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