Earlier this month, there was an article written by David Streitfeld in The New York Times on the topic of cutting loan balances on option arm mortgages. The article profiled Rula Giosmas who had her loan balance cut from $300,000 to $150,000 without even asking...Wow...We could all use that!
The article specifically referenced Bank of America and Chase Bank as two lenders who are taking an unsolicited approach to offer relief to clients with option arm mortgages in an effort to reduce their real estate exposure to potential ticking bombs. In this case, mortages which were originated with so called option-arm features provided the borrower with below market financing in the early years, aka "teaser interest rates", a growing mortgage balance from the outset and then a reset after a couple years. Given the markets consistent decline, these types of mortgages have been deemed toxic and carry a much higher default rate. Therefore, several banks are proactively approaching their borrower clients to offer them a 'refinance' or 'modification' which includes principle reduction.
"Reducing negative equity would spark a housing recovery," said economist Sam Khater.
In the case of Bank of America, it took on 550,000 option arm mortgages when it purchased Countrywide. Chase took on $50 billion in option arm mortgages when it purchased Washington Mutual. Wells Fargo bought Wachovia and took on $56 billion in option arm mortgages.
So, given this information, there are a LOT of option arm mortgages out there AND if you or your client is holding an option arm mortgage, you are possibly in line for a gift...a modification or refinance to a much lower mortgage balance.
Don't delay, pick up that phone!
Michael Hobbs, President, PahRoo Appraisal & Consultancy
Comments(1)