As part of an agreement with state attorneys general to settle charges over high-risk loans made by Countrywide, Bank of America will begin writing down loan balances for homeowners that meet eligibility criteria.
The giant lender expects this to help approximately 45,000 of it's mortgage holders to be eligible.
To be eligible the borrower myst be qualified for the federal government's $75 billion loan modification program. Borrowers must be 60 days behind on their mortgage payments and demonstrate financial hardship. Certain mortgages would be reduced by up to 30% if the loan balance is more that 120% of the home's value.
This move by a lender that may set the precedent for other lenders to follow goes beyond the Home Affordable Modification Program (HAMP) but eligibility for the principal reduction program requires eligibility in HAMP. HAMP has been largely ineffective in helping homeowners stay in their homes and in fact some homeowners that have applied have found that their credit scores have dropped as a result.
"The centerpiece of these enhancements is a program of earned principal forgiveness that addresses severely underwater mortgages with some of the highest rates of delinquency," Barbara Desoer, president of Bank of America Home Loans, said in a statement. "At the same time earned principal forgiveness helps homeowners, it also recognizes and addresses the interests of mortgage investors by ensuring that forgiveness is tied to the homeowners performance, reducing the probability of a future default under the modified terms."
How will this program help the bank's balance sheets? It is speculated that the mortgagers are not planning on paying off these loans and in fact are strategically walking away from homes. So, what do they have to lose? Oh yes....in addition the government may need to loan money to banks that participate. This is to cover the losses. And other major lenders such as Wells Fargo and CItiMortgage are offering mortgage write-downs to certain borrowers. Is this another bail-out in disguise?
Read more about how homeowners are strategically walking away from their homes at www.realeastateexpertsofflorida.com. Stay current with reliable information and commentary by a team of experienced professionals in the Florida Gulf Coast area that keep their thumb on the pulse of the housing market.