Mortgage Modification Mystery

Media reports have recently focused on big banks spontaneously offering mortgage modifications, even including principal reduction, to borrowers who are not in default and who haven’t even asked for them. See here.  The banks mentioned, JPMorgan Chase and Bank of America, both took over a lot of nasty mortgages from failed financial institutions (Washington Mutual and Countrywide Financial).

The modifications seem to be going in particular to current but underwater customers with pay option ARM mortgages (which allowed debtors not to pay for a while and add skipped payments to the principal).  Industry analysts have explained the banks’ actions as getting ahead of a problem that could affect their stock prices.  See here.  Apparently banks have been quietly modifying current mortgages for years, and hundreds of thousands of people, maybe more, have gotten improved deals this way.

But there is still a mystery.  Why don’t the banks wait for a missed payment or at least a request before making an offer?

  The homeowner featured by the NY Times, Rula Giosmas of Miami, who got her mortgage principal cut in half without even asking, was quoted as saying, “I would not have defaulted.  But they don’t know that.”   It is obvious that some money is being left on the table. 

Is there a grander plan?  The mystery takes me back to my college Behavioral Psych course.  We fed Rice Krispies to lab rats who had to push a lever to try to get a treat.  The rats frantically pushed the lever when the rewards were random but not if they were predictable.  Are the banks trying to get underwater borrowers to keep paying by offering random rewards to those who are current?  If so, why aren’t they advertising the practice rather than keeping it hushed up, creating a lottery-like frenzy to stay current?  Perhaps the recent media attention was staged?

Calling all gumshoes.  What is your explanation, and how big is this phenomenon?