So why are JPMorgan Chase, Bank of America and others generously modifying some in-good-standing mortgages? Are they doing this out of altruism? Doubtful. There must be a financial reason.

It might be that banks have ran some numbers and figured out that it makes more sense to keep these loans performing rather than  allow them to lapse into the hellhole of formal modification, which in this environment could drag on indefinitely. That makes sense. So which mortgages qualify for a gift principal reduction? It seems like options ARMs are the mortgage of choice at JPMorgan. But the type of mortgage may be less relevant than the method by which the bank came to own the mortgage, suggests Reuters.

If the loans were bought from another institution at a discount or if there has already been some reserving for possible losses on the loan, then it makes sense that the loan would be a candidate for principal reduction. If the bank originated the loan, it would be much less of a candidate. The salient idea may be that the recent credit history of these loans is so poor that they ought to all be modified to keep them performing, meaning that they aren't likely to get a write-up any other way. That would result in a few gifts to homeowners that were in no danger of default.

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