Bankers Tell Congress They Don’t Like Mortgage Modifications

A variety of bankers--mortgage execs from Bank of America, Citigroup, JPMorgan Chase and Wells Fargo, for instance–put on their best Milton Drysdale faces on Tuesday and told the U.S. House Financial Services Committee that principal reduction for underwater mortgages is a bad idea.

April 14, 2010
By Dees Stribling, Contributing Editor

A variety of bankers–mortgage execs from Bank of America, Citigroup, JPMorgan Chase and Wells Fargo, for instance–put on their best Milton Drysdale faces on Tuesday and told the U.S. House Financial Services Committee that principal reduction for underwater mortgages is a bad idea. Why? Because it’s unfair to everyone else. (It’s good to know that bankers are so concerned with fairness.)

“From the customer perspective, there is a fairness issue,” Barbara Desoer, president, Bank of America Home Loans, told the committee. “Within Bank of America’s residential servicing portfolio, nearly 86 percent of customers are current and pay their mortgages every month.” (It’s also good to know that bankers hold their customers in such high regard.)

Not only that, the bankers argued for the sanctity of contracts, especially those between individual mortgage borrowers and major banks such as themselves. (And it’s really good to know that big banks always strive to honor their contractual obligations, no matter what.)

Not everyone was impressed by these pious sentiments, however. The AP reported that “dozens of activists” from Boston-based Neighborhood Assistance Corp. of America chased David Lowman, chief executive of Chase’s mortgage division, through the halls of Congress after his testimony was over, “pressing him to do more to help troubled homeowners.” He reportedly skedaddled without talking to the activists about fairness or the sanctity of the mortgage contract.

Signs of Life for CRE?

The recently released Moody’s Investors Service Red-Yellow-Green study noted that U.S. commercial real estate is showing signs of coming out of its coma in the first quarter of 2010. Or, to use its own phrasing, “both industrial and suburban office emerged from red territory into yellow this quarter, while the retail and CBD office remained yellow and multifamily stayed green.”

No one wants to be in red territory, since the prospects of investment sales and space absorption are pretty grim there, and the invisible hand is pushing down rental rates pretty firmly as well. But as red becomes yellow–as it has for industrial real estate–sales and leasing activity perks up a bit, and rents quit getting lower (though higher rents are too much to ask for just yet).

“There’s a lot of interest from industrial users–warehouse/distribution and manufacturers–to purchase properties, and take advantage of the market,” Jeanne Rogers, a partner at Des Plaines, Ill.-based Arthur J. Rogers & Co., told CPE. Rogers recently arranged the sale of a 300,000-square-foot Bedford Park, Ill., industrial building to records management specialist GRM for $8.15 million.

So there may be signs of recovery for industrial real estate, but no one’s calling it robust just yet. “The hard part is still–and hopefully this is starting to loosen up–financing,” said Rogers. “Companies are not used to the terms being offered.”

Wall Street almost had a down day, but recovered at the end of the day to advance slightly. The Dow Jones Industrial Average gained 13.45 points, or 0.12 percent, while the S&P 500 and the Nasdaq were up 0.07 percent and 0.33 percent, respectively.