Finally, Some Real Mortgage Help

Bank of America has announced a dramatic change to its mortgage modification efforts that may finally offer some serious relief for the most at-risk home loans on its books. The company announced yesterday that it plans to initiate a $3 billion loan forgiveness program that could help as many as 45,000 homeowners.

“The centerpiece of these enhancements is a program of earned principal forgiveness that addresses severely underwater mortgages with some of the highest rates of delinquency,” said Barbara Desoer, President of Bank of America Home Loans.

The “earned principal forgiveness” will be available to borrowers whose mortgages are more than 120 percent of the value of the home, and it will allow principal reduction of up to 30 percent in order to bring the loan-to-value ratio back down to 100 percent.

This program is to be extended first to borrowers with subprime or poor credit loans and to those with pay option ARM loans, the riskiest of mortgage products. These borrowers will be given an interest-free forbearance of principal that could become a complete forgiveness of principal if the borrowers keep up with all their payments during the next five years.

Desoer stressed that while “earned principal forgiveness helps homeowners, it also recognizes and addresses the interests of mortgage investors by ensuring that forgiveness is tied to the homeowner’s performance.”

Those with underwater mortgages are the most likely to walk away from their loans, so Bank of America hopes that this program will significantly reduce the likelihood of future defaults on modified loans.

The Obama Administration and several in Congress have been putting pressure on national banks to beef up their efforts to stem the tide of U.S. foreclosures that have been stymieing the country’s housing and mortgage market.

While the Bank of America plan will barely scratch the surface of its 1.5 million delinquent loans, these new principal write-downs are modifications that are much more likely to bring about permanent success.

2 Responses to “Finally, Some Real Mortgage Help”

1. anne says:

   January 11, 2011 at 12:44 pm

   Well here we are in January 2011. I am about to enter negotiations re the forbearance part of my parents (age 80) jumbo mortgage mitigation package. I really need a 3 year earned forgiveness package to make everything work. Should I keep on hoping? If I have to pay what discount rate should I use for forbearance due in 39 years?

   Many thanks.
2. Nedra Burglin says:

   May 15, 2012 at 4:52 am

   This is the best site for anyone who desires to find out about this subject. You notice so much its nearly onerous to argue with you (not that I truly would want…HaHa). You undoubtedly put a brand new spin on a topic thats been written about for years. Nice stuff, simply nice!