BofA mortgages - Just heard on the radio...

[tigergem]

I haven't read this anywhere yet, but I heard on the radio a minute ago that Bank of America is going to cut mortgage balances by 30% for people who currently owe 120% or more on their mortgages. The report I heard said they used to do this on a case by case basis, but now they are just going to do it across the board. I guess that's a start, huh?

[DeadManCrawling]

March 24, 2010

Bank of America Corp. said Wednesday that it would offer to erase $3 billion in principal over a five-year period for homeowners with certain adjustable-rate mortgages written by Countrywide Financial Corp., the aggressive Calabasas mortgage giant that BofA acquired in 2008 as the home-lending industry imploded.

The program, resulting from a settlement of a lawsuit filed by the Massachusetts attorney general, involves a relatively small number of borrowers who are 60 days or more late in paying their loans and owe more than their home's current value, said Barbara Desoer, the head of BofA's home loan and insurance division.

Desoer said she hoped that it would serve as a model for additional principal-reduction programs aimed at underwater borrowers who want to stay in their home.

Most of the borrowers have pay-option, adjustable-rate mortgages, or option ARMs, a type of loan that allowed them to pay so little that their mortgage balances went up instead of down. To help reduce their first-mortgage payments, the bank is offering to stop charging interest on part of the principal the borrowers owe, a practice known as forbearance.

The other features of the government plan -- reducing the interest rate to as low as 2% and extending the time for payback to as much as 40 years -- would then be applied to try to get the payment down to 31% of household income, the target of the Obama administration's anti-foreclosure plan.

Borrowers who agreed to the restructured terms and who made the lower payments as scheduled would be able to gradually convert the principal placed into forbearance into forgiven principal over a five-year period.

For example, a borrower owing $250,000 might be required to make payments on only $200,000 if that is what the home is currently worth, said Jack Schakett, credit loss mitigation strategies executive at Bank of America Home Loans. A borrower who stayed current on the modified loan would have 20% of the set-aside $50,000, or $10,000 of their debt, erased each year.

An exception would be made in the fourth and fifth years of the modified loan if home values recover, Schakett said. In those years, the balance could be reduced only to the current amount of the home's value -- a feature the bank designed to placate the investors who own many of the former Countrywide mortgages.

To reach the $3-billion reduction amount, every borrower who receives an offer from BofA would have to accept it and make every payment over the course of five years, Schakett said. He said the bank believed it would come out ahead on the program because it would be more expensive to let the loans go into foreclosure.

Bank of America and other large mortgage servicers have said that the government mortgage modification program as previously applied did not work well with option ARMs because payments already were artificially low and because homeowners were discouraged because they were so far underwater.

So reducing the loan balance -- something allowed but not required under the government program -- has been seen as the only effective way to modify these loans, and the lenders say they have selectively used their own programs to do so.

Wells Fargo & Co., which inherited more than $100 billion in option ARMs when it took over Wachovia Corp., has said it modified 17% of the option-ARM portfolio with an average principal reduction of 14% by the end of December.

http://www.latimes.com/business/la-fi-countrywide25-2010mar25,0,7081426.story?track=rss

[tigergem]

It's cool that they are reducing the principle for people. Too bad they didn't offer this before how many million people had to walk away from their mortgages, though. That's really sad.

[car67]

Yes what about the people who already lost is the bad part.... Also what amazes me is that these banks also get paid from insurance companies when they foreclose so you can see why its no ones best interest to keep a home owner in the home....