August 25, 2019

Bank of America to Reduce Mortgage Balances

In an attempt to save struggling borrowers from loosing their homes to foreclosure, Bank of America will be forgiving some mortgage debt. In response to the Obama administration pressuring banks to confront the issues that push millions of homeowners to foreclosure, Bank of America began a program to offer more assistance for delinquent borrowers by reducing their mortgage balances, testing the idea that modifications are better than foreclosure.

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The practice of banks reducing loan balances is not completely new; it has been a growing strategy as a way to tackle the housing crisis. The amount of loan modifications which included some sort of principal reduction has increased from 3.1% to 13.2% in the first nine months of last year. Banks are increasingly willing to experience some short term losses if it would avoid much larger losses in the future if the housing crisis does not improve.

The Bank of America program is for borrowers who received high-risk loans from Countrywide Financial, which was bought in 2008 by Bank of America. At the time of the housing boom, Countrywide was one of the largest and most aggressive lenders. According to Bank of America, the new program will begin with helping around 45,000 Countrywide borrowers. This is a small number considering the 1.2 million delinquent homeowners with Bank of America at this time.

Bank of America does not want to be mistaken for giving delinquent borrowers an easy way out, and it aims to only help homeowners who truly can not afford their mortgages. The program will only help borrowers whose mortgage balance was at least 20 percent greater than the value of the house and also have great financial hardship such as a recent job loss.

It’s promising to see banks finally responding to the housing crises by taking action to help homeowners from facing foreclosure. The action of banks reducing mortgage payments is not without some controversy, but it will be interesting to see if this method will successfully save struggling borrowers and keep them from foreclosure. With Bank of America at the forefront and signs that the housing market may worsen, it’s possible other large banks may begin to offer help for delinquent borrowers as well.

Government announces that help is on the way for underwater or unemployed borrowers

In the last post, we discussed underwater mortgages – the term used to indicate that a homeowner owes more money on the mortgage than the home is actually worth. As the article indicated, these are the number one cause of foreclosures, but fortunately, it looks like there may be hope on the horizon for those people who find themselves in underwater mortgages; If your home is severely underwater or you’re an unemployed homeowner, the government has announced that they will be offering additional options for struggling homeowners.

If your home is underwater and you’re borrowing money, there are two options. If you are making payments on time you may be eligible for a refinance with an FHA loan (a federal assistance loan). If you’re late on payments 60 days or more, however, you must apply for assistance through the Home Affordable Modification Program. Under HAMP, lenders, including many of the major ones, are offering principal reductions.

If you have made your mortgage payments but your loan is underwater, the refinance will be done through an FHA guaranteed loan. Your mortgage debt must be over 115% of the current market value and you must meet all guidelines in order to be eligible for an FHA guaranteed loan and a principal reduction. Your principal could be written down so that your total mortgage debt is less than 115% of the home’s market value.

If you own a home and are unemployed, you can receive a temporary reduction in mortgage loan payments for at least three months (maybe even up to six months), and in certain instances you may be able to skip payments altogether. To be eligible for payment reduction, you must be receiving unemployment checks, and the payment will be set at 31% of income based on your unemployment check. Other factors determining eligibility include that your home is your main residence, you have a mortgage balance less than $729,750, you owe mortgage payments that are not larger than 31% of your income, and you can prove financial hardship.

It’s possible that some borrowers still cannot afford the loan even after the reductions because they own more than they can afford. Lenders will be given incentives by the government to write down loans, including alternatives for short sales and deed-in-lieu of foreclosure. Lenders did not used to be required to try alternatives of principal reductions with a loan modification, but now must look at both a principal reduction and a reduction in interest rate.

NACA Mortgage-Modification Seminars Help Homeowners Avoid Foreclosure

As pay cuts continue to take place and homeowners are faced with multiple other financial burdens, more and more people are having difficulty making mortgage payments. With so many problems coming together quickly, thousands of homeowners are attending mortgage-modification seminars organized by the Neighborhood Assistance Corp. of America (NACA) which matches borrowers with lenders.

Last week in Palm Beach, a five-day mortgage-modification seminar called “Save the Dream Tour” took place, intending to match borrowers nationwide with loan counselors and lenders in an attempt to discuss affordable mortgage terms and avoid foreclosure. Many homeowners owe more on the mortgage then their home is even worth. This is true for over half of all Florida homeowners. Loans by Neighborhood Assistance Corp. of America (NACA) are made based on how much the borrower can afford to pay rather than what the value of their home is.

Some homeowners were able to get their mortgages modified instantly after negotiating with representatives from Bank of America, IndyMac, Litton, GMAC, Wells Fargo and other lenders that attended the event. NACA had negotiated agreements with most these major lenders to offer modified mortgages with interest rates as low as 2 percent. If the modified loan also includes a deferral of principal, which means that part of the loan balance is not paid, then the borrower is not responsible to repay the balance unless the home is sold for a profit.

Florida, with the highest statewide home mortgage foreclosure rate in the country, has 13.4 percent of its homeowners in foreclosure. The event was valuable as it allowed lenders and loan counselors to see the faces behind the dismal statistics and sad stories of layoffs, reduced hours, tough loan terms, and difficult times.

NACA has been working hard to prevent foreclosure by holding similar events nationwide for almost two years. NACA is also one of the largest housing counseling agencies, whose counseling services are funded by the federal Department of Housing and Urban Development.