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.