J.P. Morgan Chase & Co. has agreed to modify more than $1 trillion in mortgage loans the bank previously owned and sold to investors in an effort to help more Americans avoid foreclosure and to help stem lenders’ losses from foreclosure, reports The Wall Street Journal (“J.P. Morgan Expands Loan Effort,” Jan. 16, 2009).

The bank’s decision to include these investor-owned mortgages, which J.P. Morgan currently services on behalf of those investors, will expand the $70 billion loan modification program it began in October, which was only intended to modify J.P. Morgan-owned mortgages.

“From the moment we made our last announcement, we have been working as diligently as we can to expand it to all loans because we think it’s the right thing to do,” said Charles Scharf, who oversees J.P. Morgan’s retail operations.

J.P. Morgan securitized loans — those the bank originated but then packaged and sold to a different lender — make up more than three-quarters of the $1.5 trillion in mortgages that the bank services. Not all of the investors who have loans serviced by J.P. Morgan are behind the bank’s plan to modify these securitized mortgage loans; investors fear that they may end up having to pay for J.P Morgan’s poor underwriting decisions and that modifications to their mortgage loan investments may lower their earnings.

J.P. Morgan may need the trustees representing investors who own J.P. Morgan securitized loans to approve the new program before the New York bank can begin its next batch of loan modification proceedings. Scharf said trustees and investors have been cooperative and he believes the bank will be successful in modifying the “vast majority” of its investor-owned mortgages.

J.P. Morgan also has announced that it will delay foreclosure proceedings for more than 80,000 homeowners — who represent more than $22 million of its bank-owned mortgages — and review those mortgages for possible loan modification.

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