Big banks easing mortgage terms for at-risk borrowers

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.

Banks are proactively overhauling loans for borrowers like Giosmas who have so-called pay option adjustable rate mortgages, which were popular in the wild late stages of the housing boom but which banks now view as potentially troublesome.

Before Chase shaved $150,000 off her mortgage, Giosmas owed much more on her place than it was worth. It was a fate she shared with a quarter of all homeowners with mortgages across the nation. Being underwater, as it is called, can prevent these owners from moving and taking new jobs, and places the households at greater risk of foreclosure.

“It’s a huge problem,’’ said economist Sam Khater. “Reducing negative equity would spark a housing recovery.’’

While many homeowners desperately need help to keep their homes and cannot get it, the borrowers getting unsolicited relief from Chase sometimes suspect a trick. Cutting loan balances, even for loans in default, is supposedly so rare that Federal Reserve economists wrote in March that “we could find no evidence that any lender was actually reducing principal’’ on mortgages.

“I used to say every day, ‘Why doesn’t anyone get rewarded for doing the right thing and paying their bills on time?’ ’’ said Giosmas, who is an acupuncturist and real estate investor. “And I got rewarded.’’

Pay option adjustable rate mortgages like Giosmas’ gave borrowers the option of skipping the principal payment and some of the interest payment for an introductory period of several years. The unpaid balances would be added to the body of the loan.

Bank of America and Chase inherited their portfolios of the mortgages when they bought troubled lenders during the housing crash.

Chase, which declined to comment on its program, got $50 billion in the mortgages when it bought Washington Mutual in 2008. The lender, which said last fall that it had dealt with 22,000 of the mortgages with an unpaid principal balance of $8 billion, still has $33 billion of them in its portfolio.