The Wall Street Journal is reporting that Bank of America has been able to save approximately 20 seniors from losing their homes due to defaulting on option arm products taken out during the housing boom.
Pedro Garcia, a 69 year old retired corrections officer owed about $490,000 on his Southern California home which was recently appraised at $150,000. Luckily for Garcia, Bank of America wrote down about $405,000 of his option ARM and used a reverse mortgage to pay off the remaining $85,000 balance.
Michael Drawdy, Bank of America’s senior vice president for home retention, told the WSJ the bank has issued approximately 20 reverse mortgages with write-downs to borrowers like Mr. Garcia who have "dire circumstances."
He says that though the bank loses money in this process, it would lose nearly as much by foreclosing on the home and selling it in today’s market.
According to the article, Housing counselors say Bank of America is playing a leading role in dealing with option ARMs and a reverse mortgage is proving to be a key tool to help seniors save their homes.
Another interesting aspect of the article is that Bank of America allowed a subordinate loan in Garcia’s deal. According to the WSJ, Garcia is making small monthly payments on a second mortgage that was modified by another lender.
There was discussion last about whether or not this was possible and it looks like lenders are using it in certain situations.