Chase Signs Up for Program to Assist Troubled Homebuyers

Last week, JPMorgan Chase & Co. became the third lender in the mortgage industry to sign up for a government program which assists homeowners who are in financial difficulties pay their house payments each month. The program does this by modifying home equity loans and working with second mortgages to lower payments, balances and making it generally easier for homeowners to keep their homes before going through the foreclosure process.

The program stems from the Obama administration’s loan assistance program which provided $75 billion to troubled homeowners. The plan was announced last spring, but Bank of America was the first housing lender to sign up with the program towards the beginning of 2010. Chase joined the program shortly after Wells Fargo jumped in last week as well.

The program, however, gives the lenders the opportunity to veto any efforts to modify a primary mortgage if the lender fears that the loan will not be repaid. Many people in the legislature are not happy with this part of the program. Representative Barney Frank from Massachusetts urged banks in a letter he sent out to allow borrowers to modify their primary loans. It remains to be seen what will exactly happen with this program, but it will probably be something that helps a number of troubled homeowners hold their heads above water…at least for the time being.

The basic idea of the new program is to allow troubled homeowners lower their monthly mortgage payments if they accepted a “piggyback” loan, which was essentially a second mortgage that required no down payment at a time when the housing market was going good. Even people with less-than-ideal credit got these second loans despite the fact that they were having troubles making payments on their first mortgage loan. With the new program, homeowners may have a better chance at modifying their primary loans to lower their monthly payments.

Soon after Chase made the announcement that it would be signing up for this program, shares of the lender’s stock rose by 20 cents to $43.65.