Treasury can either hold them, which does nothing to stabilize house prices, or try, through its contractors, to modify mortgages to make them affordable for homeowners.
Shares jumped after JPMorgan Chase, the banking giant, said that it would expand its program to modify mortgages to avoid foreclosures on up to $70 billion in loans.
The hearings that form the core of New York's approach — special settlement conferences, which are required to try to modify mortgages to make them affordable — have become comic exercises slowed by endless paperwork, requests for additional information and the mysterious loss of documents.
The officials ask the banks what efforts they have undertaken to respond promptly to customers' requests about modifying mortgages and to suspend foreclosures while evaluating a borrower's eligibility for loan modification.
The federal government is supposed to be helping distressed homeowners modify their mortgages through the Home Affordable Modification Program, or HAMP, which launched early in 2009 with the goal of modifying mortgages for 3 to 4 million homeowners.
In addition, there are doubts about the rescue initiatives' effectiveness in modifying mortgages and their ability to cleanse balance sheets of sour assets.
As Gerard Cassidy and other analysts at RBC note, the big banks with huge mortgage portfolios like JPMorgan Chase, Citigroup, Wells Fargo and Bank of America, have been reluctant to modify mortgages, preferring to wait out the downturn in the hopes that a rebound in their own earnings or in the real estate market will cushion losses.
In addition, the banks may book some early benefits from a subsidy the government gives them for modifying mortgages — gains that are likely to proliferate in coming quarters if the Obama administration's Making Home Affordable program takes off.
The trustees/servicers would be free to modify mortgages in order to maximize recoveries, and at the same time reduce foreclosures.
In recent months, the Treasury Department has dramatically downplayed the original goal of HAMP to modify mortgages for three to four million people.
