With the aim of preventing homeowners to move towards foreclosures JP Morgan tightened its mortgage modification efforts and has added itself to the list of banks to work out a plan with the above mentioned aim. This program by JP Morgan aims to help innumerable customers by avoiding foreclosure on about $ 70 billion in loans.
This $70 billion estimate is projected to be spread over a period of two years. This mention plan is expected to bring out changes which will lay emphasis on a particular type of loan which would be so structured that the borrower’s outstanding balance would sometimes grow over month on month. JP Morgan inherited $54 billion of such loans after it took over Washington Mutual in the month of September. Rising home foreclosures and the expected role of banks in this process has provided the major impetus in the formulation of this plan by JP Morgan. The banking community as it is is under immense political pressure to suitably address the problem of fore closures. Apart from JP Morgan, Bank of America and the Federal Deposit Insurance Corp too have similar loan plans in their offering with the aim to somehow curtail the menace of increasing fore closures.
It was this mortgage crunch which made the financial crunch presently sweeping across the United States reach this level. Big financial investors had invested huge money on the securities which were backed by risky mortgages which soon became difficult to value. As a result of it banks suffered huge losses and started lending thereby aggravating the already existing credit crunch. The US government has so far been able to tackle the grievances affecting the banking and the credit sector while the issue of ailing house owners is still to be tackled by the government. It is a widely believed view which I too abdicate that the financial markets and the economy in the US cannot be revived completely till the decline in housing prices is being arrested at a point. Fore closures is surely worsening this malady of declining house prices.
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After the seizure of Washington Mutual by the US Federal regulators due to its performance which is being dubbed as to being the largest ever failure by a US Bank, it was bought by JP Morgan Chase for US$ 1.9 billion. By means of this deal JP Morgan goes on to stake claim on all deposits, assets and some liabilities of leading savings and loan associations. This acquisition would result in giving JP Morgan the rare distinction of being the leading US depository institution in lieu of its over $900 billion of customer deposits.
This deal though would not let JP Morgan stake control on Washington Mutual’s senior unsecured debt, subordinated debts and the preferred stocks of Washington Mutual’s banks. Also, the deal prohibits Morgan Chase from staking claim on any asset or liability of the bank’s parent holding company or the non-bank subsidiaries of the holding company. JP Morgan plans to write down the loan portfolio of Washington Mutual by about $31 billion. A seizure of Washington Mutual was long anticipated considering the heavy mortgage related losses that the company had recently incurred. Its stock prices had experienced a huge plummet in its price which was in the tune of being a 95% drop and in turn bought the share prices crashing to a low of $1.69 as against its high of $36.47.
I go along with the word of analysts and consider that the depositors and customers of the banks are expected to see this development as a simple combination of two banks and expect normal working and functioning of the processes in the banks. The Federal deposit Insurance Corp doctored this sale to JP Morgan after realizing that if Washington Mutual remained open then it was not interested in it and then stepped up to organize an auction including this bank and three other institutions whose identities were not revealed. The government takes into consideration the assets of the bank to measure its failure. Washington Mutual had approximately $310 billion in assets. I would consider this deal to be a big win for JP Morgan Chase who by getting to pay $1.9 to FDIC get the opportunity to fan out and penetrate deep into the world market by providing it roughly with 5,400 branches.
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