Well duh! Have they finally figured it out?

Broderick Perkins reported in an RealtyTimes article this morning that Chase and Bank of America have begun programs to offer mortgage modifications to homeowners that involve real reductions in principal. According to his article they have even extended this program to some homeowners who had not yet even ask for relief.
Now that last line generally falls under the “hard to believe” category – big banks helping out underwater homeowners by reducing their loans without them having to ask. Perkins did set that up a bit by explaining that both banks have been under pressure from Washington because of their terrible performances with foreclosures and short sales in the past. I’m sure many Realtors can attest to that.

So, are these real “change of direction” programs or just window dressing to assuage Washington? The article seems to indicate that these programs are being used primarily for customers that had bought into some of the Option ARM products of Washington Mutual and Countrywide, two of the outfits that when bust and were bought out by Chase and BoA respectively. These ARMS were some of the most toxic of mortgage products sold during the “crazy times” of 2003-2006 and are now coming due. Many of these ARMS featured little or no payment against the principal, which put homeowners even further under water.

It’s certainly probable (and much more believable) that Chase and BoA are dong these programs primarily to placate Washington and to avoid having even more Federal programs shove down their throats. The “goodness of their hearts” argument just doesn’t fly.

Many of us in the business have been saying for some time that biting this principal reduction bullet is the only way out of this mess. It’s not clear whether or not these and other banks have some sort of deal with the government to be reimbursed for some or all of the losses that they will be declaring. It seems like I remember that there were provisions in some of the bailout legislation for the banks to be paid out of some of the economic recovery funds for some losses, but I cannot recall the details.

I have had several clients who would have stayed in their homes and been good paying mortgage holders had programs like this been offered to them. Instead they are now living in apartments or rental homes and trying to rebuild their credit. They are part of a tragedy in America that could have been avoided if common sense had prevailed. Of course, common sense seems to be a commodity in short supply these days, especially in Washington.

Let’s hope that this article presaged a true shift in strategy and direction for these and other big banks and that these programs will provide the basis for a way out of the housing mess in which we currently are stuck.