In the land of the brave and the free, some lucky homeowners are getting relief
Published 28/07/2011 | 05:00
IT may be the land of capitalism, but that does not mean that debt forgiveness does not happen in the US.
In the past few months, hundreds of thousands of American homeowners have had their mortgages written down, some of them by half.
Leading banks JP Morgan Chase, Bank of America and Wells Fargo have done this for customers who did not even ask for the debt write-off.
Bank of America alone has written down 200,000 mortgages.
Most of those who had some of their debts written off are not in default, according to reports in the US.
The write-offs have been on so-called adjustable rate mortgages, where the borrower pays a low introductory rate initially and none of the principal.
These mortgages are regarded as high risk for lenders as people often get into arrears as soon as the introductory period has ended.
Some of these were the most toxic mortgages given out during the subprime bubble in the States.
However, other homeowners who do not have these adjustable rate mortgages have not been offered debt deals.
The reductions in the mortgage principal have been for a number of mortgages that are being paid and where there are no arrears.
This has baffled commentators, but it seems the explanation is that the three banks are only writing down the principals on mortgages they acquired through acquisitions, and for mortgages that were bought at a discount.
The mortgages had already been written down when they were acquired.
JP Morgan Chase bought mortgages from failed Washington Mutual. Bank of America bought home loans from Countrywide, and Wells Fargo ended up with mortgages when it purchased the teetering Wachovia for $12.5bn in December 2008.
There are widespread calls now for these banks to also write down other mortgages, especially where homeowners are in financial distress.