Bank of America to Reduce Mortgage Balances

Last night on the evening news, as I was hurriedly getting ready for a credit union annual meeting, I heard this. Now, I seen it in my morning addition of the New York Times.

Bank of America said on Wednesday that it would begin forgiving some mortgage debt in an effort to keep distressed borrowers from losing their homes.
- New York Times

Really? Bank of America forgiving debt? I find that hard to believe? Maybe some other national banks, but BOA seems to be the last bank that I would expect this from. So what are the details?

The program, while limited in scope and available by invitation only, signals a significant shift in efforts to deal with the millions of homeowners who are facing foreclosure. It comes as banks are being urged by the White House, members of Congress and community groups to do more to stem the tide.

The Obama administration is also studying whether to provide more help to people who owe more on their mortgages than their homes are worth.
- New York Times

So, they are trying to self regulate and convince the Government that they don't need big brother hanging over them, telling them what to do? I can't fault that. Still I am leary of BOA.

The program is aimed at borrowers who received subprime or other high-risk loans from Countrywide Financial, the biggest and one of the most aggressive lenders during the housing boom. Bank of America bought Countrywide in 2008.

Bank of America officials said the maximum reduction would be 30 percent of the value of the loan. They said the program would work this way: A borrower might owe, say, $250,000 on a house whose value has fallen to $200,000. Fifty thousand dollars of that balance would be moved into a special interest-free account.

As long as the owner continued to make payments on the $200,000, $10,000 in the special account would be forgiven each year until either the balance was zero or the housing market had recovered and the borrower once again had positive equity.

“Modifications are better than foreclosure,” Jack Schakett, a Bank of America executive, said in a media briefing. “The time has come to test this kind of program.”

That was the original notion behind the government’s own modification program, which was intended to help millions of borrowers. It has actually resulted in permanently modified loans for fewer than 200,000 homeowners.

The government program, which emphasizes reductions in interest rates but not in principal owed, was strongly criticized on Wednesday by the inspector general of the Troubled Asset Relief Program for overpromising and underdelivering.

“The program will not be a long-term success if large amounts of borrowers simply redefault and end up facing foreclosure anyway,” the inspector general, Neil M. Barofsky, wrote in his report. One possible reason is that even if they get mortgage help, many borrowers are still loaded down by other kinds of debt like credit cards.

Bank of America said its new program would initially help about 45,000 Countrywide borrowers — a fraction of the 1.2 million Bank of America homeowners who are in default. The total amount of principal reduced, it estimated, would be $3 billion.
- New York Times

There is a catch though.

The Bank of America plan is limited in scope. Borrowers must have missed at least two mortgage payments and be severely underwater to qualify, owing 20 percent more than their homes are worth. It is also limited to borrowers with certain types of risky loans, including subprime mortgages or other loans with a two-year adjustable rate.
- Seattle Times

---
go ahead share your thoughts with me now, my ears are open. I'm always eager to hear what you think.


Donations are always welcomed (via paypal).
-----
follow me on Twitter