Demoskratos

(Reuters) – U.S. banks that have received government aid, including Citigroup Inc, Goldman Sachs, Morgan Stanley and JPMorgan Chase & Co, are considering buying toxic assets to be sold by rivals under the Treasury’s $1,000 billion plan to revive the financial system, the Financial Times said.

Goldman and Morgan Stanley have pledged to increase investments in distressed assets, the paper said.

This week, John Mack, Morgan Stanley’s chief executive, told staff the bank was considering how to become “one of the firms that can buy these assets and package them where your clients will have access to them,” according to the paper.

Spencer Bachus, the top Republican on the House financial services committee, told the paper that he would introduce legislation to stop financial institutions “gaming the system to reap taxpayer-subsidized windfalls.”

Bachus added it would mark “a new level of absurdity” if financial institutions were “colluding to swap assets at inflated prices using taxpayers’ dollars,” according to the paper.

Citigroup, JPMorgan and Goldman declined to comment to the paper.

The U.S. government’s plan, known as the Public-Private Investment Program, gives government help to private investors looking to buy loans and securities from banks.

“It’s an open program designed to get markets going,” a Treasury official told the paper, adding that “it is between a bank and their supervisor whether they are healthy enough to acquire assets.”

A Citigroup spokesman in Hong Kong was not immediately available for comment, while JPMorgan’s Asia-Pacific spokesman did not immediately return an email seeking comment.

A Goldman Sachs spokesman in Hong Kong declined to comment.

A Morgan Stanley spokesman from the company’s office in Hong Kong was not immediately available for comment.

The report, based on an analysis of nearly 35 million loans worth more than $6 trillion, was published by the federal Office of the Comptroller of the Currency and the Office of Thrift Supervision. It provides the most detailed and broad analysis to date of efforts to stem the foreclosure crisis.

Among loan modifications made in the October-December quarter, about 37 percent resulted in a drop in payments of more than 10 percent, compared with about one-fourth in the first nine months of the year. Regulators saw that growth as a positive sign.

“The trend toward lowering payments to make home mortgages more affordable is moving in the right direction,” John Bowman, acting director of the Office of Thrift Supervision, said in a prepared statement.

Still, nearly one in four loan modifications in the fourth quarter actually resulted in increased monthly payments. That situation can happen when lenders add fees or past-due interest to a loan and spread those payments out over the 30- or 40-year period.

Perhaps unsurprisingly, the report found that loans were far less likely to fall back into default if a borrower’s monthly payment is reduced by a healthy amount.

Nine months after modification, about 26 percent of loans in which payments had dropped by 10 percent or more had fallen back into default. That compares with about half of loans in which the payment was unchanged or increased.

“This new data shows that, in the current stressful environment, modification strategies that result in unchanged or increased mortgage payments run the risk of unacceptably high re-default rates,” Comptroller of the Currency John Dugan said in a statement.

The Obama administration is aiming to help up to 9 million borrowers stay in their homes through refinanced mortgages or modified loans. It is spending $75 billion to provide lenders an incentive to alter more loans.

Still, the faltering economy, driven down by the collapse of the housing bubble, is causing the housing crisis to spread.

Among the loans surveyed in the report, just over 10 percent were delinquent or in foreclosure, compared with 7 percent at the end of September, the report said. Delinquencies are increasing the most among prime loans made to borrowers with strong credit, it said.