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Banks Disagree Over Plan On Principal Reduction

RENEE MONTAGNE, host:

To push along the mortgage modification process, the Obama administration has been pressuring banks to reduce not just the interest but also the principal on many home loans. That idea has gotten a mixed reaction from big banks.

From member station WNYC in New York, Ilya Marritz reports.

ILYA MARRITZ: One institution that's embraced principal reduction is Bank of America. Last month, B of A said 45,000 of its borrowers could qualify to have their mortgage debt reduced by up to 30 percent. The bank is promoting itself as an institution that's listening and responding to those affected by the mortgage crisis.

(Soundbite of video)

Unidentified Woman: We have various different options as far as modifications and repayment plans and forbearances, depending upon the situation and case by case.

MARRITZ: That's the voice of a Bank of America loan specialist from an online video.

But at a congressional hearing Tuesday, other big banks had a different message: The government could make things worse by trying to make them better.

David Lowman is with JPMorgan Chase.

Mr. DAVID LOWMAN (CEO, Global Mortgage, JPMorgan Chase): Broad-based principal reduction could result in decreased access to credit and higher cost for consumers because lenders will price for principal forgiveness risk.

MARRITZ: Translation: If the government tries to browbeat banks into writing down principal, banks will avoid low-income borrowers.

Lowman went on to tell the House Financial Services Committee that a broad-based principal reduction program could cost the industry up to $900 billion.

For NPR News, I'm Ilya Marritz. Transcript provided by NPR, Copyright NPR.

Ilya Marritz