JPMorgan (JPM) and other big US banks have started a campaign against the Administration’s proposed program for them to cut the amount of the principles on the mortgages of millions of people. The White House believes that this will keep people in their homes by lowering their monthly payments.  It will also allow homeowners to again have equity in their residences which are worth less than the amount of loans they owe.

The banks reasonably argue that they will have to write down huge losses for the change in home mortgage values.

According to The Wall Street Journal, “To write down loans enough to bring those debts down to no more than the home values would cost $700 billion to $900 billion, J.P. Morgan Chase estimated.” And,  “That would include costs of $150 billion to the Federal Housing Administration and government-controlled mortgage investors Fannie Mae and Freddie Mac.”

But, JPMorgan and its peers are not worried about Fannie Mae and Freddie Mac. Their losses are taxpayer problems. The big banks understand that, under current accounting rules, the revaluation will cost them tens of billions of dollars in losses which may damage their capital positions and curtail their activities in other areas of their businesses.

The government has not come to the banks with any proposal that would allow them to account for the write-downs in a way that will not hurt their balance sheets or a proposal to help offset some of the cost of “forgiveness” of mortgage principles with federal aid.

The government has a great deal to gain by taking another step to solve the housing disaster. The banks have plenty to lose.

Douglas A. McIntyre

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