BofA announced Wednesday that it would reduce mortgage balances by as much as 30% for homeowners who were upside down and got their loan from Countrywide. While BofA may only be doing this to avoid a predatory lending lawsuit from the Massachusetts AG, Martha Coakley, this is what the market has needed. The current, or should I say previous loan modification programs have thus far been a horrid failure with only 4% - 8% of all modification being approved and we are already seeing high default rates on those modifications.
Here are some of the details of the BofA program:
- Invitation only: the bank will contact you if you qualify
- The program is for Countrywide borrowers only
- Loan balance must be at least 120% of the estimated market value
- Borrower must be at least 60 days overdue
- Borrower must demonstrate financial hardship
The problem with the current loan modification process is that the lenders are only modifying the interest rates and extending the length of the loan. Principle reduction is the key to making loan modifications successful. What good is it to just change the interest rate and extend the length of the loan if the homeowner can’t sell the property in the next few years because their principle balance is still more that what the property is worth?
Way to go Bank of America… I hope they are successful and other lenders catch on and follow suit. Even though this program is limited to a small percentage of BofA customers with Countrywide loans, they estimate it will help 45,000 Countrywide borrows. Currently BofA hold 1.2 million loans that are in default.
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What do you think, is this the step in the right direction, or is BofA just doing this to avoid a law suit from the Massachusetts AG? |
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