Bank of America to Cut Mortgage Debt for Homeowners

bank of america

The plan is one of the boldest moves yet to address the plight of millions of U.S. homeowners who are “under water,” owing more on their homes than they’re worth.

Bank of America Corp. said it would reduce mortgage-loan balances as much as 30% for thousands of troubled borrowers, in what could presage a wider government effort to encourage banks to offer debt reduction to ease the mortgage crisis.

So far, most modifications, including those under the government-subsidized Home Affordable Modification Program, involve reducing interest rates. Some also extend terms to 40 years, to shrink monthly payments.  But banks are finding that some borrowers aren’t willing to keep making even reduced payments, believing they have little hope of ever having equity in their homes and might be better off renting, and perhaps buying a less-expensive home later.

“Severely under-water homeowners are reluctant to accept a solution that does not offer some reduction in principal,” said Barbara Desoer, president of Bank of America Home Loans. “The whole purpose of the program is to get more customers to return phone calls” and make payments for trial modifications so workouts can be made permanent, she added.

The action by Bank of America is notable because it is the largest mortgage servicer, collecting loan payments on one of every five home loans in the U.S.  At the end of last year, 14.76% of them were at least 30 days past due or in foreclosure, versus an industry average of 12.31%, according to Inside Mortgage Finance.

The bank’s program is limited to Countrywide borrowers whose loan balance is at least 120% of the estimated home value, who are at least 60 days overdue, and who can show that financial hardship makes them unable to meet current payments. The bank estimated that 45,000 customers will qualify for principal reductions averaging more than $60,000.

Source:  JAMES R. HAGERTY And NICK TIMIRAOS (The Wall Street Journal)




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