Bank of America on Wednesday 24th March 2010 announced a program to offer homeowners who owe significantly more than their homes are worth the opportunity to have their loan balances reduced.
The program, will start in May, would potentially help about 45,000 homeowners nationwide. Bank of America is thinking about how to address the millions of homeowners whose mortgages exceed the value of their homes and who have complicated industry and government efforts to prevent foreclosures.
Lenders have traditionally resisted reducing borrowers’ loan balances, arguing that doing so would encourage homeowners to miss mortgage payments to qualify. But as foreclosure-prevention efforts have struggled, the industry has started to relent. Bank of America is hoping that by reducing principal balances it will give borrowers an incentive to keep up with their payments and potentially create an industry model.
BOA has found that many homeowners who owe considerably more on their mortgages than their homes are worth are reluctant to accept a solution that addresses only the amount of the payment without an accompanying reduction in the balance due on the loan.
The Bank of America plan is limited . 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.
Bank of America expects to forgive about $3 billion in principal on loans as part of the program.
Treasury is considering proposals to address negative equity, but have not given a timeline for announcing a plan. Under the federal foreclosure-relief program known as Making Home Affordable, borrowers can receive up to $5,000 to lower their loan balances if they keep up their payments.
It’s estimated that more than 11.3 million homeowners are underwater on their mortgages.
POSTED: Mar. 25th, 2010
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