Chase will now modify all option ARMs it services

<p>If you have an option ARM mortgage from Washington Mutual, EMC Mortgage Corp.

If you have an option ARM mortgage from Washington Mutual, EMC Mortgage Corp. or Chase Bank, it should be easier to modify or refinance your loan.

In October, JPMorgan Chase & Co., which owns WaMu and EMC, announced a mortgage modification program for Chase-owned loans that was designed to help keep 400,000 families out of foreclosure.

In January, Chase expanded that program to include all mortgages it services, including ones that are owned by outside investors.

In the past, mortgage servicing companies have argued that they can't change the terms of those loans without investor approval, which has been difficult and time-consuming to obtain.

But based on its review of investor agreements and its experience with investors and trustees, Chase now says it can legally modify the majority of mortgages owned by investors without obtaining their approval on each deal.

The bank will continue to seek investor approval only when the loan agreements specifically limit its ability to modify a mortgage.

"We have reviewed closely the terms of our investor agreements and have worked with investors, trustees, government officials and other interested parties to fashion an approach to foreclosure prevention efforts that will work for investors and homeowners," says Charles Scharf, Chase's chief executive officer for retail financial services.

The effort is part of a growing realization, even within the banking industry, that more must be done to reduce the record number of foreclosures sweeping the country.

Foreclosure prevention programs, such as HOPE NOW, that the Bush administration negotiated with lenders have been a big disappointment and haven't done nearly enough to slow the number of families losing their homes.

JPMorgan Chase was forced to act because it obtained so many deceptive option ARMs -- ones that borrowers can't hope to repay -- when it bought WaMu in September 2008 and EMC in February 2008.

Many of these borrowers didn't realize the low minimum monthly payment they were encouraged to make didn't even cover the interest charge. They were being plunged deeper into debt each month.

Nor did they understand that the minimum payment would expire and they'd have to start paying the full interest charge and reducing the principal within five years.

Here's what JPMorgan Chase is doing:

Opening regional counseling centers to be staffed by 300 additional loan counselors.

Two of the 24 new centers are currently open in Florida and California; 12 are expected to be open by Feb. 28, and the remaining 10 are scheduled to open by mid-March.

Modifying loans to lower the monthly payments.

The bank says it will do whatever it takes, from lowering interest rates to refinancing borrowers into 30-year, fixed-rate loans. If necessary, it will allow customers to make interest-only payments for 10 years.

All modifications will eliminate negative amortization, which allows a borrower to pay less than the total monthly interest with the difference added onto the loan balance.

The specific rates and modification terms are being determined on a case-by-case basis, according to spokesman Tom Kelly. Chase's goal is to have each borrower's mortgage payments consume no more than 30% to 40% of their income.

One thing JPMorgan Chase won't do is forgive part of a borrower's debt, spokeswoman Christine Holevas says.

That's too bad. Forgiving debt is one of the few ways to significantly reduce monthly payments and avoid foreclosures. It also addresses one of the worst things about the option ARMs JPMorgan Chase wants to fix: Most of these borrowers owe more now than when they opened the loans.

Unfortunately, the bank's position is typical of what we've seen since the mortgage crisis struck in 2007 -- lenders have consistently refused to write down debt.

It's a major reason most mortgage modification programs haven't worked very well.

The only lender that's agreed to write down significant amounts of debt is Bank of America, and it only did so to settle a lawsuit brought by 11 state attorneys general.

With debt forgiveness off the table, we'll have to see if JPMorgan Chase can really save hundreds of thousands of loans.

Eligible customers will be contacted by the bank.

However, if you think you are about to default or have fallen behind on your payments, Holevas says you should call the customer service number listed on your Chase, WaMu or EMC monthly statement.