Turn On The Lights, Watch The Roaches Scatter Part 73

In the wake of BofA's multi-billion dollar settlement, the rest of the banks want out of Foreclosuregate, and they're buying their way out.

As millions of Americans struggle in foreclosure with little hope of relief, big banks are going to borrowers who are not even in default and cutting their debt or easing the mortgage terms, sometimes with no questions asked.

Two of the nation’s biggest lenders, 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.

Rula Giosmas is one of the beneficiaries. Last year she received a letter from Chase saying it was cutting in half the amount she owed on her condominium.

Ms. Giosmas, who lives in Miami, was not in default on her $300,000 loan. She did not understand why she would receive this gift — although she wasted no time in taking it. 

So what's the deal here?  Why are banks doing this?  Simple.  You see, A) they've already written off loans like this, so if they recover them by reducing debt, their books look better, B) it costs them nothing to do this because of A and they gain a lot of good press, C) if people can't pay, the banks just have more lousy loans on the books they lose money on and D) the banks have too many damn foreclosed homes to deal with right now.

The banks say cutting mortgage balances would be unfair to borrowers who remain current as well as impractical because so many loans are securitized into pools owned by investors. Bank of America’s chief executive, Brian T. Moynihan, told the attorneys general in April that cutting principal for current borrowers would send the wrong message to all those who have struggled to pay their bills. His counterpart at Chase, Jamie Dimon, bluntly said it was “off the table.” 

But the banks are doing it anyway.  That's how bad the foreclosuregate log jam has backfired on the banks.  They want out of ARM loans and they want out now.  Of course, everyone else is going to want debt relief on their mortgage too.  Things could get very interesting.