Borrowers seen aided more than banks post-election

By Jonathan Stempel - Analysis

NEW YORK (Reuters) - Democratic Party gains in Tuesday's U.S. elections will lead to a greater emphasis on helping aggrieved borrowers rather than lenders cope with the nation's financial crisis, and that could damage the chances of the nation's battered banks recovering quickly.

U.S. voters go to the polls at a time when bank shares have lost more than half their value since early 2007 and a series of leading institutions have gone out of business or been forced into mergers.

The credit problems once concentrated in subprime mortgages have expanded to an ever-widening array of loans, including prime mortgages, credit cards and auto loans.

Many economists and Democratic politicians have criticized government attempts to shore up credit markets for focusing more on the deteriorating health of lenders than on the homeowners and businesses struggling to pay their bills.

And if voters put Democratic Sen. Barack Obama in the White House and bolster that party's ranks in Congress, the pendulum could shift decisively toward helping bank customers more, particularly as they try to deal with an economic downturn that could be the worst since at least the early 1980s.

Banks may face pressure to renegotiate mortgages to help borrowers avoid foreclosure, and to curb or lower fees on credit cards. That could drive down margins at a time many lenders are scrambling for deposits by offering high yields.

"With no one feeling warm and fuzzy about big banks nowadays, we could see, as part of regulatory reform, limits on credit card fees and ATM fees," said Lawrence J. White, an economics professor at New York University's Stern School of Business.

"A combination of a Democratic Congress and Democratic White House would mean more pressure on financial institutions generally to do more for communities," he added. "Clearly, there will be pressure to renegotiate mortgages."

Obama has consistently led Republican John McCain in opinion polls on the race for the White House.

"He'll be pushed in the direction of saying 'let's do this on an even-handed basis,' being more concerned about the interests of taxpayers than the interests of the institutions being bailed out," said Dan Alpert, managing director at Westwood Capital, a boutique investment bank in New York.

PREEMPTING THE GOVERNMENT

Some banks are not waiting for Washington to act before taking steps they say will help struggling borrowers.

JPMorgan Chase & Co (JPM.N), for example, last week announced plans to modify up to $70 billion of mortgages, including from the former units of Washington Mutual Inc (WAMUQ.PK) that it acquired in September.

Bank of America Corp (BAC.N), which bought mortgage lending giant Countrywide Financial Corp in July, adopted a similar program under pressure from regulators last month.

Other lenders may follow, especially because loan workouts are often less costly for banks than foreclosures.