Why Citigroup and JPMorgan are freezing foreclosures

Citigroup Inc. (NYSE:C) and JPMorgan Chase & Co. (NYSE: JPM), two of the largest mortgage holders, announced they would temporarily freeze foreclosures as the Obama administration prepares to unveil a new policy to keep financially stressed homeowners in their homes.

The banks are not doing this to be good corporate citizens, though they would probably argue otherwise. Foreclosures are bad for business. Companies have to write down the values of the bad loans. Then there are the legal fees associated with foreclosures, a process which can drag out for several months. Banks also need to hire people to maintain the vacant property and to try and sell it.

At the end of the day, the mortgage companies will probably lose money. Until the recent credit crunch, some mortgage companies would bend over backwards to help delinquent borrowers to avoid having to pay the costs associated with foreclosures. During congressional hearings this week, financial services CEOs touted their programs to work with distressed homeowners.