Moratorium on Foreclosures

In lockstep, Citigroup and JP Morgan Chase are putting foreclosures on hold. The hiatus is in force until March 6th.

Here’s an excerpt of a letter from Jamie Dimon to Barney Frank, D-MA, and the House Financial Services Committee.

We will not add  to the foreclosure process any new owner-occupied residential loans that are owned and serviced by JPMorgan Chase.  This moratorium replicates the 90-day foreclosure freeze we announced on October 31, 2008.  We believe three weeks is adequate time for the Treasury to announce – and for us to implement – a new plan.

The implication is that JPM is waiting for more specifics from Congress.  This puts the onus squarely on the people in Washington, DC to come up with a solution.

One area that has been eerily without action is some kind of policy movement on mark-to-market accounting.  As it is now, toxic assets that can’t be sold have to valued at little or no worth.  This weakens balance sheets and creates a second impact on lending, as banks have to pull back on leveraging their capital in order to make their capitalization ratios.

If its just a matter of market fear, and there is actually value underneath these “legacy assets,” then doing something about mark-to-market accounting could restore the markets.  The darker scenario is that these assets are really the dogs that we fear that they could be.  In that event, then the observations of NYU professor Nouriel Roubini may be on the mark.  We may be facing widespread insolvency in the US banking system.

This comes at a point when it seems that the problems associated with foreclosure are only getting worse. In their latest mortgage metrics report, the OCC and the OTS issued a joint paper chronicling the continued weakening in loan performance across the country. The next table shows the percentage of all mortgage loans that were either in one of two stages of delinquency, or that are in the foreclosure process, at the end of the specified quarter.