Major national lenders JPMorgan Chase and Bank of America are quietly changing the terms of tens of thousands of loans for borrowers that the banks deem to be of special risk, the New York Times reported. These borrowers, who have not defaulted on their mortgages or asked for help, have so-called pay option adjustable rate mortgages, which were popular in the late stages of the boom, and which lenders now deem to be especially troublesome.
Borrowers receiving unsolicited relief from JPMorgan can’t help but suspect a trick, according to the Times. Cutting loan balances, even for loans in default, is extremely rare.
Dan Frahm, a spokesman for Bank of America, said it was utilizing every possible technique short of principal reduction to remake its loans: “By proactively contacting pay option ARM customers and discussing other products with better options for long-term, affordable payments, we hope to prevent customers from reaching a point where they struggle to make their payments,” Frahm said.
Adam Levitin, a professor of law at Georgetown University, argued that little-publicized programs added fodder to accusations that the banks were behaving in contradictory and dishonest ways.
“Modifications that should be happening aren’t, while loan modifications that shouldn’t be happening are,” he said. “Homeowners of any sort, whether current or in default, would rightly be confused and angry by this.” [NYT]