Super secret spontaneous mortgage relief?

For several years now, the one thing the big banks have insisted on is that they are in no position to reduce the balances on underwater home mortgages.

Now it turns out that some of them are in fact, very quietly doing just that.

As reported by David Streitfeld in the New York Times and Boston Globe, “JPMorgan Chase and Bank of America, are quietly modifying loans for tens of thousands of borrowers who have not asked for help but whom the banks deem to be at special risk.”

And that’s the catch — you can’t apply for this type of aid, you just have to have it handed to you.

Huh?

What seems to be at issue are “pay option” adjustable rate mortgages, a type of exploding loan that was popular during the heyday of the housing bubble.

The pay-option makes it possible for the homeowner to skip making payments for a specified period of time. When homeowners take advantage of this feature, their balance owed tends to rise over time, instead of the loan being paid off.

Apparently, BOA and Chase and maybe others have decided that this type of loan is so risky that it warrants special pro-active attention — including the reduction of loan principal so the homeowner has some motivation to make a payment.

Streitfeld’s aticle outlines the experience of Miami condo owner Rulas Giosmas, who had her mortgage slashed in half, without asking, even though she was current on payments and had no intention of defaulting.

We now appear to be truly entering a twilight-world in the realm of debt and bankruptcy law. Those who need mortgage modifications can’t get them and must go through a tortorous application process and wait months to be told “no.” Those who don’t need a modification at all might get the best kind of modification possible, principal reduction, without applying or even asking. And the bankruptcy code still does not allow routine modification of first mortgages (seconds and home equity loans are a different matter).

I haven’t yet heard about this happening in the Merrimack Valley, but it stands to reason that it will. back in 2005 when the bankruptcy laws were changed I remember walking down Essex Street in Lawrence and marvelling at all the mortgage companies in operation there. Same here in the North Andover office parks. It stands to reason that a lot of these companies may have offered the “pay-option” plan to local residents.

Are you feeling lucky today?

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