Bank of America announced that they are creating a new loan balance reduction program has created a bit of a stir in the news today. However, before you go racing down to your local branch looking for relief, there are a few things you need to know.
Expect other bank to follow suit, not because they want to but because they have NO OTHER CHOICE! If the banks don’t eat the losses people are simply going to keep walking away from these mortgages regardless of the billion dollar mortgage programs funded by the government. principle reduction programs have been available for a long time, but the bank didn’t want to do this because it hurts their portfolios too hard.
So I want to be the first to say thank Bank of America thanks for joining us for breakfast. This change will take place on June 1st, 2010.
Key Points of the Bank of America Announces Loan Balance Reduction Program:
- The loan reduction program is invitation only. That means that you can not ask for it, they will tell you if you are invited to get relief.
- If you got your loan from Bank of America, don’t expect any help. This program is aimed at the Countrywide borrowers who most likely were written a mortgage that regulators are looking at sceptically.
- The write down amount caps out at 30 percent.
- You have to remain current over a 5 year period to get the benefit of the Bank of America loan balance relief program.
- This program is only for those who are in immediate fear of losing their house and can not afford their payments.
So if you have made all your payments and are in a good solid 30 year loan but are upside down on your mortgage, the Bank of America loan relief program is not for you. You just have done everything right and will suffer.
However, if you placed a big bet and took out an interest only or subprime loan with Countrywide for a home you could not afford at the time and that loan is underwater right now and you are behind on your payments, you may see some significant relief with this loan modification program.
This is a great program to get those who are in trouble out of of the woods. The only thing I wish is that it rewarded those who did things right, not only those who took huge risks.
The program is aimed at borrowers who received subprime or other high-risk loans from Countrywide Financial, the biggest and one of the most aggressive lenders during the housing boom. Bank of America bought Countrywide in 2008.
Bank of America officials said the maximum reduction would be 30 percent of the value of the loan. They said the program would work this way: A borrower might owe, say, $250,000 on a house whose value has fallen to $200,000. Fifty thousand dollars of that balance would be moved into a special interest-free account.
As long as the owner continued to make payments on the $200,000, $10,000 in the special account would be forgiven each year until either the balance was zero or the housing market had recovered and the borrower once again had positive equity.
“Modifications are better than foreclosure,” Jack Schakett, a Bank of America executive, said in a media briefing. “The time has come to test this kind of program.”
That was the original notion behind the government’s own modification program, which was intended to help millions of borrowers. It has actually resulted in permanently modified loans for fewer than 200,000 homeowners. via The New York Times
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