Under pressure to assist struggling borrowers from losing their homes, the Bank of America, the world’s largest mortgage lender, announced a plan to reduce loan balances for selected people who owe significantly more than the value of their homes. The program will begin in May, and it could help about 45,000 homeowners, possibly more.
There have been concerns about reducing loan balances. Some lenders fear that reducing loan balances will encourage borrowers to miss mortgage payments to qualify. However, as foreclosure-prevention measures have struggled to keep families in their homes, the industry is starting to be more flexible. After all, it is better to take losses now, rather than face greater losses in the future if the housing market continues to go down.
The Bank of America hopes that their mortgage principal reduction program will provide incentives for homeowners to keep up with their payments. If successful, the program can inspire other lenders to put up their own loan reduction programs.
The selection process
As an “invitation-only” program, the Bank of America has set the following general guidelines for selecting homeowners:
- They must have missed at least two mortgage payments.
- Their mortgages must be severely underwater.
- They should owe 20% more than their homes are worth.
The program is also limited to those with risky loans, like mortgages with a 2-year adjustable rate or sub-prime mortgages.
How it works
Let’s say a borrower owes $250,000 on a home worth only $200,000. The Bank of America will move the $50,000 to a special interest-free account. As long as the borrower continues to make payments on the mortgage, $10,000 of the special interest-free account will be forgiven each year until the balance has reached zero or the housing market recovers and the borrower has now a positive equity.
Sign up on the box at the right for more information on mortgage foreclosure and refinance options you can use.
Add A Comment