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Loan modifications: Bank of America cuts principal
> Posted by Harriet Brackey on March 24, 2010 05:16 PMPOSTED IN: Your Money (185)Bank of America Corp., one of the largest mortgage lenders in Florida, said Wednesday it will give some troubled mortgage borrowers a huge break.
It will forgive up to 30 percent of some customers' total mortgage balance.
But the bank remains under fire in Florida, where hundreds of borrowers have lodged complaints with Attorney General Bill McCollum over its reluctance to modify mortgages, lost paperwork, or canceled deals for borrowers who are making their payments on time.
As the nation’s largest bank, Bank of America could lead the way for other lenders to start reducing principal, which is the amount the borrower owes. The U.S. Treasury has discussed making principal reductions a step in the Obama administration’s loan modification program. And, a group of influential mortgage investors recently called for it to become an industrywide practice.
“It’s a step in the right in the right direction,” said Peter E.S. Wallis, a Pompano Beach attorney who handles foreclosure defense cases. “We need to have all the major lenders, all the mortgage holders, to follow suit to bring principal reductions into line across the board.”
The plan, which would begin in May, is part of an agreement the Charlotte, N.C.-based bank reached 18 months ago with state attorneys general to settle charges over high-risk loans made by Countrywide Financial Corp. Florida was part of that agreement. The loans were made before Bank of America acquired Countrywide in mid-2008.
Those loans continue to trouble borrowers like Lynn Mankin of Coral Springs, whose lender was Countrywide and who has been battling Bank of America over a loan modification. She withdrew money – before retirement -- from her 401(k) account to keep paying her mortgage, after losing her job. But Bank of America later cancelled her loan modification. Her reaction to Wednesday’s announcment was skeptical: “I’m from Missouri,” she said. “Show me.”
Under Bank of America’s proposal, homeowners must be at least 60 days delinquent on their loans and owe more than 120 percent of their homes' value. Thousands of South Florida borrowers are “underwater” on their mortgages, meaning they owe more than their home is worth.
Roughly 54 percent of Broward County mortgage holders – 246,675 homeowners – are underwater, according to First American CoreLogic, a California research firm. In Palm Beach County, 45 percent of mortgage holders – 157,544 homeowners – face that problem.
Bank of America is the nation’s largest lender to systematically reduce principal, but it is not the first.Ocwen Financial, based in West Palm Beach and a servicer of risky loans, has reduced principal on 15 percent of the 100,000 loans it has modified from its portfolio of 300,000 loans. It began reducing principal even before the Obama administration’s foreclosure program Making Home Affordable began a year ago.
Millions of homes have gone into foreclosure since the housing market collapsed in late 2007. The loans affected by Bank of America's announcement include certain subprime and option adjustable rate mortgages. Option ARMs allow borrowers to start with minimal monthly payments that actually increase the loan's balance.
The borrowers who can take advantage of the Bank of America program must also qualify for the Obama administration's $75 billion mortgage loan modification program.
Bank of America estimates that about 45,000 customers will qualify for its plan. It’s unclear how many South Florida homeowners might qualify.
The offer will cut total reduced principal by about $3 billion. That could lower the bank's earnings, which have already been hurt by consumers' continuing defaults on mortgage and credit card loans. Bank of America was among the hardest hit by the credit crisis and recession.
Even so, “the move helps create the best prospect of avoiding a further downward home price spiral, which would result in even deeper losses” for the bank, said Howard Glaser, a mortgage industry consultant, in an e-mail.
According to new plan, Bank of America will first offer to set aside a portion of the principal balance, interest free. That principal can be forgiven over five years, if homeowners don't miss any payments. The maximum decrease in principal will be 30 percent.
The forgiveness allows a homeowner to bring a mortgage balance back down to 100 percent of the home's value, the bank said.
Glaser said the program could lead the Obama administration to launch a similar effort for the entire industry. That, he wrote, would be a “major shift in loan modification efforts.”’
Lenders including Bank of America have been criticized for not helping enough borrowers to complete the Obama administration's $75 billion loan modification program, which is widely viewed as a disappointment. Only 170,000 homeowners have completed the program so far.
As of last month, Bank of America had completed modifications for about 22,000 homeowners, or about 8 percent of those signed up. That compares with about 12 percent for Wells Fargo & Co. and 11 percent for both JPMorgan Chase & Co. and Citigroup Inc.The Treasury Department estimates that 1.5 million to 2 million homeowners will complete the program by the end of 2012, about half of the original goal. A report issued late Tuesday by Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, says numerous changes to government guidelines “caused confusion and delay” and said the government did not do enough to advertise the program.
Staff writer Paul Owers contributed to this story.
Information from the Associated Press was used in this report.
Comments
SOOO
Just because my wife and I were fiscally responsible, did not borrow "Bubble equity" and made sure our BoA mortgage payments were affordable, we lose out???
Right now I estimate that our home is break even debt to value.
UNBELIEVABLE!!!!
Where is the benefit from being responsible??
Why don't banks just do this across the board for everyone? Maybe the fed should get involved and order it as a fiscal bailout for the common person. Talk about stimulus--If I suddenly owed 30% less on my home--wow. We might be able to eat out again--maybe once a month at Olive Garden--with a coupon,Posted by: jeff | March 25, 2010 7:41 AM
I lose out because I make my payments on time and I didn't move up to the house I really wanted 5 years ago because I didn't want to get in over my head they way others were, but now, they get some help and I don't? That is crazy! Others are being "rewarded" for their wrongdoing and I am being punished for being mature and smart.
Make it across the board principal cut for all!As the other poster said, UNBELIEVABLE and sooo wrong.
Posted by: Darragh Zehring | March 25, 2010 8:19 AM
When Obama introduced the program in the latter part of February of 2009, he claimed that the program would help 3-4 million homeowners, but as it turns out, the program has at best helped… and I use that term very loosely… about 170,000 homeowners to-date.
Assuming the plan’s goal was to create foreclosures, it’s doing fairly well. Only 170,000 loan mods have slipped through. As to how many of those 170,000 loan mods are worth a darn, and how many are saving $20 a month for the next couple of years… I don’t even want to know. You heard me right… please no one study that. I don’t think I could stand the program being shown to be any stupider than it already clearly is.
And as far the program’s cost, let’s not talk about that either. After all, keep it in perspective: $375 BILLION is only a couple years bonuses at Goldman Sachs.
Posted by: al | March 25, 2010 8:27 AM
Darragh Zehring & jeff stop your crying... everyone is always complaining about how the little guys are killing the system...what about this?
Wednesday, March 24, 2010
JP Morgan's Grand Theft Larceny at the Expense of the TaxpayerPosted by: laura | March 25, 2010 8:31 AM
We are where we are at given moment due to the choices that we make. Come on guys. Real estate bail out for home owners? Forgive 30% of the loan amount for someone who made a decision to buy something that they couldn't afford in the first place? They call most of these guys Flippers. A guy or gal who makes 30 or 40 thousand dollars a year lies about their income and that seemed to be leagal at the time. They buy a 400,000 dollar house and flip it for 450,000 6 months later. Oh, and they bought it for nothing down and no closing costs and made zero payments before the flip. Hey, the market crashed and they got caught. Why not use our taxes to bail these idiots out? It's the World according to Barney Frank.
Posted by: David Lott | March 25, 2010 10:32 AM
I wonder if our "victim" de jour, Yvonne (from your previous posts), is going to get any relief under this scheme by BoA.
I certainly hope not. She pulled $39k out of her home when she refinanced. Had she not pulled out all the cash, she wouldn't be so undewater on her home.
I hope BoA doesn't give any relief to the folks like Yvonne who used their homes as an ATM.
Posted by: Sure | March 25, 2010 11:01 AM
So upon which tree does all the "free" money grow?
First the feds encouraged the bad behavior of all the loans(via freddie and fannie) to the unqualified, which artificially spiraled the market UP, now they are rewarding the supposed victims at everyone else's expense.
Talk about a double whammy for the taxpayer.
Posted by: fids | March 25, 2010 4:51 PM
Yeah it has nothing to do with the economy?...all you people must liver by the motto...its better to be lucky than smart...cause the latter you are not...
More middle-class jobless need government aid"It's a strange world I find myself in, to go from making $100,000 a year to making $24,000 a year," said Tanner, who has found some contract legal work and part-time jobs but nothing solid in the past seven months.
Posted by: george | March 25, 2010 9:47 PM
This is pathetic. So people who bought at the peak of the market to live in their home, got screwed on the bloated value but have been mature and responsible homeowners paying on time and keeping up with their bills, CANNOT PARTICIPATE in this plan if it goes through?
This country is so far gone it is beyond belief.
Posted by: Pissed | March 26, 2010 8:53 AM
No this is pathetic...if you rigged a market you'd be in jail.
JPMorgan, Lehman, UBS Named as Conspirators in Muni Bid-Rigging
March 26 (Bloomberg) -- JPMorgan Chase & Co., Lehman Brothers Holdings Inc. and UBS AG were among more than a dozen Wall Street firms involved in a conspiracy to pay below-market interest rates to U.S. state and local governments on investments, according to documents filed in a U.S. Justice Department criminal antitrust case.
Posted by: marty | March 26, 2010 9:30 AM
I pay on time all my debts. I bought several properties during the boom and sold all of them just before the crash, I made out pretty good. But I directed the profits into multiple trusts, to avoid excess tax fees, all done legally. NOW TO YOU CRY BABY PAY ONTIME DOGOODERS WHO THINK THAT ITS A CRIME TO REDUCE PRINCIPLE TO MANY THOUSANDS WHO NEED HELP, GO TAKE A WALK ON A BED OF NAILS. YES THERE ARE THOSE WHO TAKE ON MORE THEN THEY COULD HANDLE, AND THOSE WHO USED THE SYSTEM TO SCAM IT. ALL OF YOU WHO ARE CRYING BECAUSE YOU THOUGHT THAT PAYING ON TIME WAS A GOOD THING(WHICH IT IS, ME INCLUDED)NEED TO STOP CRYING AND GETTING ON WITH YOU LIFE. LIKE ME I PAID ALL MY BILLS AND IN A WAY WAS LUCKY ENOUGH TO PROFIT FROM ALL THE GREED AT THE TIME I DID. BUT I OWN RENTAL PROPERTIES IN AREAS WHERE FORECLOSURES AND ABANDONED HOMES HAVE CAUSED 100'S OF 1000'S OF DAMAGE TO THE LOCAL ECONOMNY. THE BANKS WERE BAILED OUT BY MY TAX MONEY AND YOURS. SO I AM FOR THESE PEOPLE BEING HELPED WHERE QUALIFIED. THE ONLY THING I WORRY ABOUT IS WHAT STANDARD THE STUPID BANKS WILL USE. YOU CRY BABY JACK ASS'S SHOULD THINK ABOUT THE REALITY OF WHAT HAS HAPPENED TO 100'S OF 1000'S OF HOME OWNERS AND UNEMPLOYED PEOPLE, AND SHOULD WELCOME THE HELP THATS BEING OFFERED TO HELP THEM. WHY DONT YOU TO THE GOVERNMENT TO BAIL YOU OUT LIKE THEY DID THE BANKS. HELP TO THE PEOPLE IS WELCOME IN MY BOOKS IF IT WORKS. BUT FOR YOU WHO CRY FOUL BECAUSE OF THE HELP THEY ARE GETTING, GET A LIFE!
Posted by: Henry | March 28, 2010 1:56 PM
Henry nice post...
Wednesday, March 31, 2010
FBI warns of mortgage fraud ‘epidemic’: Seeks to head off ‘next S&L crisis’Rampant fraud in the mortgage industry has increased so sharply that the FBI warned Friday of an "epidemic" of financial crimes which, if not curtailed, could become "the next S&L crisis."
Posted by: gary | March 31, 2010 9:45 AM
So do you have a home loan with Bank of America? Can this new loan modification piece help you or someone you know save their home?
Let's discuss this and other financial issues on WoW Conversations, every Sunday @ 9:00pm EST http://www.blogtalkradio.com/WomenObtainingWealth
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