Are lenders finally getting contrite after their predatory lending practices?
Some are just plain lucky in life. In the case of Pedro Garcia, his luck came from the same bank that almost threw him out of his home. The Wall Street Journal writes, “Mr. Garcia owed about $490,000 on his home, which a recent appraisal said is now worth only about $150,000. Bank of America wrote down about $405,000 of the loan. To account for the rest, the bank then issued a reverse mortgage for about $85,000. But instead of paying that amount to Mr. Garcia, as is usual with a reverse mortgage, the bank paid the proceeds to itself. A reverse mortgage is a form of equity loan available to older homeowners that generally doesn’t need to be repaid until after the homeowner dies.
“That means Mr. Garcia can remain in his home without having to make mortgage payments to Bank of America. (Mr. Garcia is making small monthly payments on a second mortgage that was modified by another lender.) When he dies, the house reverts to Bank of America, and his heirs can choose to buy it back for the $85,000 plus interest and fees. Or, if the heirs choose to walk away, the bank can sell the house, and any proceeds above the loan amount would go to Mr. Garcia’s family.”
So does this mean that we’ll be expecting other banks to do the same? In my opinion, they’re just pressured by the government to restructure or modify the existing mortgages of those currently underwater. But don’t expect the tide to turn so easily. Instead of checking the successful mortgage modifications that the each bank has undertaken, why don’t we tally the percentage of successful modification out of the total delinquent borrowers that they’ve scammed during the real estate boom? How’s that for a headline?
Furthermore, one successful mortgage modification from BofA doesn’t make them unsung heroes of the recession right away. They’ll never be and the shadows of Countrywide will still be with them.