Chase Fighting New Regulations

Why? Because the sweeping financial overhaul could force Chase and other banks to shed assets and become smaller institutions. The new regulations will also tighten the grip both state and federal regulators have over financial institutions, possibly even setting up a consumer protection agency with wide-ranging powers.

We're not talking about a moral issue, we're talking about reality. The big banks don't want to write down their losses until they absolutely have to. They would rather let homes go to foreclosure slowly -- collecting fees along the way -- than take a major writedown now. Never mind that most experts believe that principal reduction is the only solution to the foreclosure crisis.

At issue is the $448 billion in equity lines and other junior loans held primarily by the nation's four biggest banks. If principal writedown is allowed, most of the equity lines involved will be wiped out if the property is underwater. In fact, the plan Obama announced last week for owners of such homes allowed only 10 cents to 20 cents on the dollar for second-lien holders.

Right now second lienholders are holding up mortgage modifications for underwater homes. Yet mortgage experts clearly have determined that a borrower whose mortgage is more than 115 percent underwater will likely walk away from the home. If the borrower walks away, the first lienholder forecloses and the second lienholder gets nothing anyway.

This week's Congressional hearings will explore how equity lines and other junior liens are thwarting the mortgage modification process.