BofA to offer forgiveness of up to 30 pct in two stages * Statement due Weds, also covers negative amortization loans (Adds detail, background) By David Lawder WASHINGTON, March 23 (Reuters) - Bank of America will on Wednesday announce plans to start forgiving mortgage loan principal for troubled homeowners who owe more than 120 percent of their home's value or are battling ever-expanding "negative amortization" loans. According to a summary of the program obtained by Reuters, Bank of America pledged to offer an "earned principal forgiveness" of up to 30 percent in two stages. The lender will first offer an interest-free forbearance of principal that the homeowner can turn into forgiven principal annually over five years, provided they stay current on their payments. The forgiveness can allow a homeowner to bring the loan value back down to 100 percent of the home's value over five years, according to the plan, confirmed by sources close to the matter. The plan, to begin in May, is among the first by a U.S. mortgage lender that takes a systematic approach to reducing mortgage principal to tackle the thorny issue of preventing foreclosures when home values drop well below the amount owed. A Bank of America spokesman declined comment. Announcement of the program in Washington comes as U.S. lawmakers and housing advocates are becoming increasingly vocal about the need for principal writedowns in order to save homes on a large scale. Amid stubbornly high unemployment, homeowners are seen as more likely to simply abandon an unaffordable mortgage when they have no equity or are deep "underwater" on the loan. The U.S. Treasury's mortgage modification program has largely relied on reducing interest rates, and has been criticized for failing to address a steep and painful reduction in home values. The announcement also will come two days after two Washington state residents sued Bank of America for allegedly reneging on a promise it made to modify troubled mortgages when it took $25 billion in taxpayer bailout money. The lawsuit alleged that the lender has "seriously strung out, delayed and otherwised hindered" modifications because it had financial incentives to do so. NEGATIVE AMORTIZATION LOANS TARGETED Under the plan, Bank of America also will slash the principal balance on the worst of the high-risk mortgages written during the height of the housing boom, the so-called "payment option" adjustable rate mortgages that had a negative amortization feature that allowed the principal balance to grow. On such loans that are delinquent and in danger of imminent default, the lender will announce that it will cut principal to as low as a 95 percent of the property's value. Bank of America lender also will expand its modification program to consider payment reductions on prime hybrid adjustable rate mortgages that have floating interest rates after two years and will extend its National Homeowner Retention Plan by six months until the end of 2012. The bank expects to be operationally ready to start the earned principal reduction plan in May. It plans to identify mortgages that may be eligible for these programs and proactively contact homeowners to request documents to verify eligibility. (Additional reporting by Joe Rauch in Charlotte; Editing by Lincoln Feast) http://www.reuters.com/article/idUSSGE62N02520100324
Huge story. I've been saying for months that all of these mortgage mod programs were worthless unless they actually reduced the principal balance. This plan by B of A looks like it actually does just that. It will be interesting to see if other large mortgage servicers begin to folllow suit.
And how will counterparties on MBS/CDS derivatives be made whole? The taxpayer via the Fed. This is total bullshit.
Yea, and who pays for it? The bank has capital requirements to meet. And then there's a huge aftermarket of MBS and CDS longs tied to those tranches that just so happen to get "written down". Those contracts go into default and somebody is on the hook for a shitload. Obviously the FED has guaranteed support which is just another raping of the taxpayer to float these underwater banks via inflated home prices. This is a complete joke. As if the Feds balance sheet and national debt wern't big enough. Now this. Wtf is going on.
Baloney. Its probable that BofA has already marked these loans down by a larger amount than what they will offer for principal reduction. This could actually add to their profits.
This is just fucking incredible, "FORGIVING" troubled homeowners who owe more than 120 percent of their home's value????. What is going on with this situation, WHEN does it end, this is why housing prices are still inflated because of this fucking pathetic nonsense they are pushing to help every struggling homeowner who couldn't afford a house to begin with. How long can this go on for, this is creating such a false bottom in housing prices. I'm surprised millions of people just don't stop paying their mortgage all together, maybe the 100 million homeowners in the US will all get free fucking hand outs. This is just totally out of line. Bank of America will on Wednesday announce plans to start forgiving mortgage loan principal for troubled homeowners who owe more than 120 percent of their home's value or are battling ever-expanding "negative amortization" loans.
Annually over 5 years, if "current." Well, if you're 20%+ underwater, there's a good chance you aren't current to begin with. 30% write down over 5 years banks on the theory that prices stop falling within 2-3 years tops. Otherwise this program is useless within the 30% principal usage, or it needs to be continually modified as prices go down more. Just another rah rah we're doing "something" program that few people will end up qualifying for after going through the red tape. It needs to be write down principal effective immediately once approved...sure feet dragging can go there too, but not 5 years...and like a loan mod it's approved, x amount taken off, here's your new payment amount, done. This crap will just continue otherwise for the rest of this decade.