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Bank of America Starts Modifying Mortgages

This article was written by in Real Estate and Home. 8 comments.


Earlier this month, Bank of America changed its overdraft policy in a manner that seems to benefit its customers. Those using the bank’s debit cards for purchases will no longer be able to overdraw their account, generating overdraft fees. Instead, Bank of America will simply decline the purchases. This wouldn’t affect checks and pre-authorized debits, so your rent payment won’t bounce.

Bank of America, after repossessing the wrong house and a parrot, wants to get back on customers’ good sides. The “Making Home Affordable” program was set in motion last year, but banks have been hard pressed to help troubled borrowers. This announcement seems to be a step in the right direction.

This is in the bank’s best interest as well, as modifying loan balances will reduce the chances that borrowers will simply walk away from their homes, leaving banks with the houses — assets they are not prepared to deal with.

Here is what customers need to qualify:

  • Customers must have a sub-prime mortgage or certain adjustable-rate mortgage on their house.
  • Borrowers must be at least 60 days behind on their payments.
  • The value of the mortgage must be at least 120% of the home’s value.
  • The home must be the primary residence.
  • The amount owed on the mortgage must be less than $729,750.
  • Customers must have acquired the mortgage before January 1, 2009.
  • The total payment on the first mortgage (including principal, interest, taxes, insurance and homeowner’s association dues, if applicable) must be more than 31% of your current gross income.

Borrowers who qualify will be able to receive a forbearance of mortgage principal. After five years of timely payments, the forbearance will become forgiveness. This will result in a modification of the principal balance, but Bank of America will not adjust the balance below 100% of the home’s appraised value.

If the plan is put into motion and 45,000 borrowers take advantage as expected, and if the bank cooperates, many homeowners will be effectively somewhat bailed out, much like banks and insurance companies. If other banks follow suit and there begin to be results from the Making Home Affordable program, expanding beyond 45,000 troubled homeowners, this could be the “Main Street bail-out” the public has been calling for.

Published or updated March 25, 2010. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 8 comments… read them below or add one }

avatar Troy

Don’t count on it. BOA isn’t doing this becasue they are nice. It is part of a legal settlement dealing with Countrywide.

And just like MHA, the press release sounds better that the reality. This will help very few people. And doubtful other banks will follow because they are not involved in CW lawsuits.

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avatar Peter

Given Bank of America’s past history, and the hundreds of comments left on my blog complaining about them not modifying mortgages, I’ll believe it when I see it! I hope they ARE turning over a new leaf, however. We shall see!

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avatar steveDH

I haven’t read anything about a Consent Decree or settlement agreements but I’d be willing to bet that you hit the nail on the head with the profit motive. “assets they are not prepared to deal with” The cost/benefit analysis on most properties, especially preventing the destruction of the property as the homeowner (?) left, added to the expense of resale, tips the scales to the “help ‘em out” side. From a business standpoint; It’s about what’s in for them. I’m not a BoA basher (I’m actually a customer) but this isn’t philanthropy – its business.

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avatar Evan

In addition to the business decision about not wanting to deal with assets, aren’t they also making more money on the notes? If they aren’t lowering the balance, but just extending the amortization length wouldn’t that just leave more money in their pocket?

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avatar steveDH

They say they will in fact, lower the balance after 5 years of payments. However, they will not forgive anything below the current market price. If that’s current market price at the time of forgiveness – if the housing market rebounds in that 5 year period they forgive less – but I’m not sure about when the market price is set. Unless you’re really really underwater it might not amount to anything more then not having to pay as much interest and keeping your home. I am again assuming (shame on me) that the forebearance amount is not subject to interest during that 5 years – since I’m not in the position to get my hands on the documents, I’m trying to figure this out through news accounts which have surely been spun by BoA PR folks. It’s like Health-Care Reform – the spining keeps you dizzy ;-)

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avatar Matty

Bottom line, regardless of how these modification programs are structured, is that people will usually continue to default if they were previously sub prime borrowers. I have read numerous times about some of the loan mod programs since the start of the credit crisis a few years back. They all end the same……the borrowers should have never taken out the loan that they did, they default, their loans are modified, they start paying the lower amount for a few months, and for most, will default once again within a few months. Not to sound heartless, but the only real solution in these cases is foreclosure. Most of these borrowers should be renting and not owning. The sooner we face this fact, the sooner home prices will bottom and we can move on from the credit crisis.

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avatar Hope to Prosper

I agree with Troy that BofA is doing this partially because of the CW lawsuit. However, I disagree that other banks won’t follow suit. Not only are there many more customer lawsuits popping up, but Congress, the President and many states District Attorney are starting to apply pressure.

Also, as Steve pointed out, the banks don’t have much to lose with this type of modification. They can avoid the foreclosure and legal costs right now and if housing rebounds within five years, they don’t lose any of the loan principle. Plus, it looks like they are actually being helpful.

Disclosure: I own 100 shares of BofA stock.

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avatar wylerassociate ♦905 (Dime)

in retrospect, I wonder if BofA would have taken over CountryWide again.

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