Wednesday, March 24, 2010, 2:45pm EDT | Modified: Thursday, March 25, 2010, 7:49am
BofA to offer home-loan forgiveness
Charlotte Business Journal - by Adam O’Daniel Staff Writer
Bank of America Corp. launched a program Wednesday that will offer mortgage-principal forgiveness worth about $3 billion to 45,000 borrowers.
The program will be used with other bank and federal efforts to help struggling homeowners, such as the Home Affordable Modification Program and National Homeownership Retention Program.
Only borrowers already eligible for loan modifications will be considered for the new program. And BofA says it will contact borrowers with the offer because only a limited group of customers will be eligible. The program is intended to serve borrowers who owe at least 120 percent of their home’s value and are more than 60 days past due on mortgage payments.
Any forgiveness will depend on the borrower making on-time payments for up to five years. If the home’s value rises, the amount of principal forgiven may be reduced.
Bank of America Home Loans President Barbara Desoer says the purpose of offering principal forgiveness is to modify distressed mortgages at a better rate and to balance the interests of customers and investors.
“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,” Desoer said. “We believe by first addressing the significant underwater condition of some NHRP-eligible loans, the rates of customer acceptance of HAMP trial modifications and conversions to permanent modifications on those loans will be improved, and the homeowners will be more motivated to make payments.”
Desoer says the new policy “recognizes and addresses the interests of mortgage investors by ensuring that forgiveness is tied to the homeowner’s performance, reducing the probability of a future default under the modified terms, and adjusting the total amount to be forgiven in light of any gains in property values that might occur in an economic recovery.”
Here’s how the new policy works:
•BofA will contact eligible borrowers. No action is needed by customers.
•Borrowers must be underwater on their mortgage by at least 20 percent and be 60 days past due on payments.
•BofA will offer interest-free forbearance for principal loan amounts above the home’s value.
•That forbearance amount will be forgiven at a rate of 20 percent of its initial balance each year for three years.
•After three years, the loan will be reevaluated. Loans still exceeding the home’s value will continue to receive forgiveness. If the home’s value has increased during the three-year period, and the borrower is no longer underwater, then no more principal will be forgiven.
•Borrowers must make on-time payments to remain in the program.
BofA says principal reduction will be the first consideration in a loan modification. Then the bank will consider reducing interest rates if further assistance is needed.
Desoer says Charlotte-based BofA (NYSE:BAC) becomes the first major mortgage servicer to implement such a program. She says the program is needed because many underwater borrowers are reluctant to accept loan modifications unless a principal reduction is offered. But in trials, she says 30 percent of borrowers who declined a loan modification changed their mind when principal reduction was offered.
The new policy is far from a silver bullet for the housing crisis. Only 45,000 borrowers at BofA are estimated to be eligible — about 1.5 million borrowers are 60 days or more delinquent on payments, bank officials say.
Still, improving the rate of loan modifications is an important step for BofA because distressed homeowners who can’t agree to terms of a modification often end up in foreclosure.
“Modifications are better than foreclosures,” says Jack Schakett, credit-loss mitigation strategies executive at BofA.
Customers seeking more information should click here.
The program will be used with other bank and federal efforts to help struggling homeowners, such as the Home Affordable Modification Program and National Homeownership Retention Program.
Only borrowers already eligible for loan modifications will be considered for the new program. And BofA says it will contact borrowers with the offer because only a limited group of customers will be eligible. The program is intended to serve borrowers who owe at least 120 percent of their home’s value and are more than 60 days past due on mortgage payments.
Any forgiveness will depend on the borrower making on-time payments for up to five years. If the home’s value rises, the amount of principal forgiven may be reduced.
Bank of America Home Loans President Barbara Desoer says the purpose of offering principal forgiveness is to modify distressed mortgages at a better rate and to balance the interests of customers and investors.
“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,” Desoer said. “We believe by first addressing the significant underwater condition of some NHRP-eligible loans, the rates of customer acceptance of HAMP trial modifications and conversions to permanent modifications on those loans will be improved, and the homeowners will be more motivated to make payments.”
Desoer says the new policy “recognizes and addresses the interests of mortgage investors by ensuring that forgiveness is tied to the homeowner’s performance, reducing the probability of a future default under the modified terms, and adjusting the total amount to be forgiven in light of any gains in property values that might occur in an economic recovery.”
Here’s how the new policy works:
•BofA will contact eligible borrowers. No action is needed by customers.
•Borrowers must be underwater on their mortgage by at least 20 percent and be 60 days past due on payments.
•BofA will offer interest-free forbearance for principal loan amounts above the home’s value.
•That forbearance amount will be forgiven at a rate of 20 percent of its initial balance each year for three years.
•After three years, the loan will be reevaluated. Loans still exceeding the home’s value will continue to receive forgiveness. If the home’s value has increased during the three-year period, and the borrower is no longer underwater, then no more principal will be forgiven.
•Borrowers must make on-time payments to remain in the program.
BofA says principal reduction will be the first consideration in a loan modification. Then the bank will consider reducing interest rates if further assistance is needed.
Desoer says Charlotte-based BofA (NYSE:BAC) becomes the first major mortgage servicer to implement such a program. She says the program is needed because many underwater borrowers are reluctant to accept loan modifications unless a principal reduction is offered. But in trials, she says 30 percent of borrowers who declined a loan modification changed their mind when principal reduction was offered.
The new policy is far from a silver bullet for the housing crisis. Only 45,000 borrowers at BofA are estimated to be eligible — about 1.5 million borrowers are 60 days or more delinquent on payments, bank officials say.
Still, improving the rate of loan modifications is an important step for BofA because distressed homeowners who can’t agree to terms of a modification often end up in foreclosure.
“Modifications are better than foreclosures,” says Jack Schakett, credit-loss mitigation strategies executive at BofA.
Customers seeking more information should click here.
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