Congress does not like the way that most bailout money is going to banks. It wants to see the little guy with the underwater mortgage and stagnant income get some direct help. Federal agencies say that working with millions of homeowners is too complex, at least for now, and that the current legislation does not go far enough to aid the system mortgage-by-mortgage.

All that wrestling about who will help people who are going to get thrown out of their homes was addressed by JP Morgan (JPM). It will simply wade into its mortgage pool and help those who cannot help themselves. Some cheaters may make in through a loophole, but the big bank is not letting that deter it.

The US bank will renegotiate as many as $70 billion of its mortgages and freeze foreclosures for a much as 90 days. According to the FT, "The measures are expected to stave off the threat of home repossessions for 400,000 families by cutting their mortgage bills." The action addresses an astonishingly large part of the housing madness. If it is followed by Bank of America (BAC), which bought CountryWide, and Wells Fargo (WFC), which will own Wachovia, the actions could put a floor under the housing market without the federal government doing a thing.

RealtyTrac reports that there were 765,558  foreclosure filing in Q3. If the WFC and BAC follow JP Morgan’s lead, well over one million troubled mortgages could be addressed between now and the end of the year. Given the size of the Countrywide portfolio, which is believed to be the largest subprime pool in the US mortgage market, an aid program from the banks might reach closer to 1.5 million homeowners.

It would be ironic if three larges banks which helped plunge the financial system into darkness were the major instruments of saving it. Toxic paper and mortgage-backed securities at JPM, BAC, WFC, and the troubled banks they bought caused tens of billions of dollars in write-downs and helped freeze up the credit system.

The biggest threat to a financial system recovery is still considered to be the accelerating drop in housing prices and the foreclosures that result.

Private banks may end up providing the aid package the federal government has been slow to come up with.

Douglas A. McIntyre

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