JPMorgan Chase (NYSE:JPM) and Bank of America (NYSE:BAC) are “quietly modifying loans” for borrowers not even in default, cutting debt and easing mortgage terms for borrowers deemed to be at risk by the banks. Banks are being proactive over pay option adjustable rate mortgages (option ARMs), popular before the financial crisis when the housing market was booming, but now at heightened risk for default. Many of these borrowers end up owing more on their mortgages than their homes are worth, which prevents them from moving and taking new jobs.
But many borrowers receiving the unsolicited relief are suspicious both of the actual status of their mortgages and of the banks’ (NYSE:XLF) motives. According to Federal Reserve economists, cutting loan balances, even on loans in default, is so rare that the Fed said they “could find no evidence that any lender was actually reducing principal” on mortgages, according to a paper published back in March.
Read the rest of the article at Wall Street Cheat Sheet
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