October 7, 2008

Bank Of America's Loan Abuse Settlement By The Numbers

The potential extent of Bank of America’s “loan abuse” settlement by the numbers for select Californians:

∙ $3.4 billion: reduced interest payments and principal
∙ $33.6 million: waiver of late fees
∙ $27.9 million: assistance for seriously delinquent/already foreclosed upon borrowers
∙ $25.6 million: waiver of prepayment penalties
∙ $25.2 million: payments to those who will eventually lose their homes to foreclosure

Those who are most likely to qualify now? Those who were least qualified (subprime) and engaged in the most risky behaviors (pay-option ARMs) then.

BofA OKs foreclosure relief for Californians [SFGate]

First Published: October 7, 2008 7:10 AM

Comments from "Plugged In" Readers

I haven't been able to dig up the actual settlement agreement, but from the AG's summary it looks like this is simply a commitment by BofA/Countrywide to do what they were doing anyway.

It only applies to subprime and pay-option ARMs, no other loan type (although others "may also be considered for modifications" if you're in default). Eliminates pretty much all of SF except for the voluntary aspect.

It suspends foreclosures but only pending a determination of whether the borrower would be able to afford the loan with modifications.

Borrower must be in default.

Home must be owner-occupied.

Loan must be 75% or more of home's value and borrower must be able to afford the modified loan.

Subprime borrowers might obtain an interest rate reduction.

Pay-option borrowers might receive a reduction in principal to 95% of the home's value and maybe an interest rate reduction.

Some garbage penalties and late fees would be waived (and a modest amount refunded).

In other words, this is what prudent lenders are doing already. If you are underwater and can't pay, but might be able to afford a modified loan, BofA may offer it to you (which would be better for BofA than a foreclosure). If you couldn't afford even a modified loan, you're out of luck (better for BofA to foreclose). If you have any real equity, you're out of luck(better for BofA to foreclose). If you can afford your current payment even though you're underwater, you're out of luck (you can pay anyway, and if you choose not to, better for BofA to foreclose).

This is about crowing for the politicians, not any real impact. The dollar numbers floated in the press are meaningless.


Posted by: Trip at October 7, 2008 8:54 AM

The only thing I think they are going to change is the fact that they will make larger cash for keys offers that exceed the value of the stuff the "owners" can rip out to stop the "owners" from blowing off the offer and ripping everything out and selling it.

Darn, I really needed a cheap source of light fixtures and I was hoping they would come with some free drywall attached. Sigh...

Posted by: tipster at October 7, 2008 11:24 AM

I am just wondering,

Some of the targeted borrowers are under water. If BofA lowers their balance enough, they will be in a position to sell their homes and either go to renting (probably cheaper even at the new low prices) or chase down cheap foreclosed property.

After all, a good number of the people in trouble were opportunists with more guts than brains.

Is there any clause in the settlement preventing someone from selling right away?

Posted by: San FronziScheme at October 7, 2008 2:19 PM

My home got foreclosed and all I got was some free appliances.

Posted by: marko1332 at October 7, 2008 4:15 PM

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