If you happen to be underwater on your home, were at least 60 days past due on a Bank of America mortgage as of January 31, and your housing expenses are more than 25 percent of your household’s gross income, don’t toss any letters from the bank before opening the envelope.

Bank of America Home Loans has begun reaching out to customers who may be eligible for forgiveness of a portion of the principal balance on their mortgage under terms of a recent settlement among five major banks, 49 state attorneys general and the federal government.

The first letters in a targeted outreach to more than 200,000 potential candidates for this assistance are arriving in homes this week; most of the letters will be mailed by the third quarter of this year. The bank estimates average monthly savings of 30 percent on mortgage payments of customers who qualify for this program.

Under the terms of the government settlement, the bank will strive to provide an affordable payment to qualified under-water homeowners by first reducing the principal balance to as low as 100 percent of the current property value, then lowering the interest rate and forbearing additional principal, as necessary, to reach the target payment.

Have no fear shareholders, the settlement is anything but altruistic and the offers will only be approved “if the cost incurred by the mortgage investor to modify [a] loan does not exceed the expected loss to the investor if it goes to foreclosure instead.”
Bank of America Extends Modification Offers [bankofamerica.com]

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Comments from “Plugged-In” Readers

  1. Posted by lol

    6 years since the national top of the market and more than 5 years into the current housing downturn, BofA realizes it would gain from being more flexible. How many billions did they collect in bailout when they were fighting for their survival 4 years ago again?

  2. Posted by tipster

    The shocker is that one bank has 200,000 people who are 60 days late on their mortgage.
    They have $800,000,000 to use for the program and they expect to cut the principal by about $100,000 each (of which a third is probably nothing more than late fees and accrued interest that they’ll never see if they foreclose).
    So that’s 8,000 loans nationwide or about 250 loans in CA. SF might see as many as 25 loans modified. It’s better than a kick in the pants, but it’s really only going to be going towards the few people for whom the cut will make a difference between struggling and not struggling, and only if the homeowner continues to keep the loan higher than the value of the property.

  3. Posted by soccermom

    I expect 0 loans in SF be modified. SF Values in the context of the central valley have held up very well. Banks in fact do recover late fees and accrued interest on many foreclosures with loans in quality areas.
    Still and all, kind of seems like they are asking for people to stop paying in order to qualify for the program…

  4. Posted by Brahma (incensed renter)

    lol, BoA doesn’t and didn’t just come to their senses and “realize” anything. If it weren’t for the 49 state attorneys general forcing a settlement, this would have never happened. I like how the press release doesn’t mention what the settlement was a settlement of. Can we say Robo-Signing settlement?
    Tipster, it’s even worse than you’ve described, as the program stipulates that the borrower has to be 60 days late on their mortgage as of January 31, 2012 (from the above link, sixth ‘graph, bullet point 2). Presumably they did this so that people getting a principal reduction wouldn’t brag to their neighbors about how much money they saved and induce those neighbors to also default in anticipation of their own principal reduction.
    Behavioral Finance is tricky!
    So as of this program’s start, the borrower would have to have been at least 150 days late, which in any normal year would mean that foreclosure would have already been well under way.

  5. Posted by Rillion

    soccermom – banks almost never capture all their accrued interest and fees in a foreclosure. If they were able to do that when generally FC’d homes sell a markdowns, then the house would have been sold before FC.

  6. Posted by Rillion

    “Behavioral Finance is tricky!”
    Tell me about it. I’ve gotten so tired of hearing about all these programs to help people that bought places it turns out they could not afford. Here I went and bought a place I could afford and when it falls by 25% there are no programs to reduce my principal owed because I pay on time and my payments are only 21% of my income (even before accounting for any tax benefits). These programs just reinforce the notion that doing things the right way (paying my debts) is actually the wrong thing to do. Why should just the irresponsible people get rewarded?

  7. Posted by BS

    I’m with you, Rillion. I bought my rental/investment property in mid-2004. I’ve been current on all my payments. I just simply want to refi my 6.125% loan to the current rates, but I can’t because I’m about 50K underwater. I don’t want to sell or “strategically walk away” from the property, and don’t need a modification or principal reduction, but there are no programs to just simply let me do a good, honest refi . . . all because I can afford the payments. Talk about this shit being unfair.

  8. Posted by Brahma (incensed renter)

    What constitutes a “quality area”? From sfweekly.com earlier this month, The Dispossessed: Bayview Homeowners Fight Foreclosures:

    Geary and Shirley Brown bought their first home in June 1995. He had built up savings from his years as a trucker…throw in Shirley’s income as a nursing assistant at Laguna Honda Hospital and they could afford the 30-year fixed-rate mortgage for the two-story, three-bedroom, two-bathroom, $194,500 hilltop house in Bayview.

    By 2005…he took advantage of his rapidly appreciating property and refinanced his home for $300,000 with Wilmington Financial…Wilmington paid off Brown’s original mortgage ($194,500), then gave Brown a new home loan for the current appraised value of the house ($300,000), with Brown pocketing most of the $106,000 difference.

    Seven months later, property values still rising, he replaced that loan with a $431,550 loan from Equifirst; and then again in January 2007 for $475,000 with Countrywide Home Loans.…Brown chose the option with the lowest monthly payment: an adjustable-rate mortgage, where monthly payments begin at a certain amount before increasing after a set number of years. For the $475,000 mortgage, he started paying $1,800 a month.

    …To Brown, who’d worked hard all his life to earn his house, the refinance felt like a well-deserved reward…The story is familiar by now: The housing market collapsed, and property values tanked, meaning that many homeowners could no longer pay off the mortgage by selling the house. Compounding the problem…their adjustable-rate mortgage payments had increased after two years. Brown’s climbed from $1,800 to $2,800…

    A nagging knee injury put Brown’s wife on disability in 2008. So when the recession hit and Brown’s business slowed, the household didn’t have the second income to balance the budget. It was around this time that the mortgage payment jumped to $2,800…Brown began missing payments. Then in early 2010, his wife was diagnosed with pancreatic cancer…Brown was scraping together enough to meet payments, but not enough to cover the months he had missed…Brown missed six straight payments.

    Bank of America says that around this time Brown was offered a trial modification program, where borrowers must complete three monthly payments at the modified rate before being considered for a permanent modification. The bank claims he missed the trial payments. Brown says he doesn’t remember getting this offer.

    He continued to seek a loan modification. Bank of America continued to decline. After all, the bank no longer owned the mortgage — like many loans, Brown’s had been bundled with others and sold to investors. So the bank was looking out for the investors’ interest. From that perspective, the math is simple: Usually for a bank to modify a loan, says Bank of America spokesman Rick Simon, the modification must yield the investor more profit (or less loss) than the foreclosure sale would.

    Are you getting the flavor yet? At this point, Brown has a mortgage originally written for $475,000 and has been accumulating back mortgage payments, interest, late fees and penalties for the better part of a year. And now the dénouement:

    On Sept. 6, Harborview Mortgage Loan Trust, the investment group that purchased Brown’s loan from Bank of America, became the owner of Brown’s deed…By January the bank had put the house up for auction. The property was appraised at $252,191. In February, Brown’s wife died…Shuffling through the crowd, Brown runs into another acquaintance…Since getting that letter a few weeks ago, Brown has heard again from Bank of America.

    “The bank made a judgment,” Brown discloses, unprompted.

    “Yeah?”

    “They said they’re not gonna modify.”

    He must vacate his house by May 2.

    Emphasis mine. Like they say in the blogosphere, go read the whole thing. I can’t say that Mr. Brown is a sympathetic foreclosed-on former homeowner, and if I had to bet I’d say he’s probably still living in his home. Still, a 46.9% drop in value for that home since 2007, nominal and not counting penalties and fees.
    Of course, we don’t know how much of a haircut BofA took when they sold off Mr. Brown’s mortgage, but had BofA carried that loan on their books, they’d probably have done a principal reduction.

  9. Posted by tipster

    No one is “rewarding” anyone. The name of the game is to suck as much money out of people as possible. You can afford to pay, so sucking money out of you is easy and it will be done to the maximum degree possible.
    To someone who cannot afford to pay, the bank has a choice: they can foreclose, sell the place for market value, or they can, to a limited degree and because they were forced by the attorneys general to do something, suck as much money out of others who are willing to keep paying a mortgage balance in excess of the fair market value.
    So let’s look at three hypothetical homes, yours and two deadbeats. All three bought for $800K, and now they are worth $600K.
    You can afford to pay so you will either keep paying or walk away. If you haven’t walked by now, you have a preposterous emotional attachment to your home. Thanks for being that foolish, we’ll hang you out to dry for your foolishness.
    Deadbeat #1 can only afford a $650K mortgage. Sorry, on him we foreclose, to make an example of him.
    Deadbeat #2 can only afford a $730K mortgage and has racked up $30K in fees and interest. That PLUS his demonstrated assertion that he is far smarter than you, and does not let his emotions get away from him, means he stopped paying is mortgage at least 6 months ago. However, if he is so stupid that he is willing to pay for a $730K mortgage on a $600K home, BofA will “generously” knock the $30K in interest and fees off the balance (for which the fed loaned them at 0% anyways and therefore cost BofA almost nothing) and forgive a whopping $70K if he agrees to keep paying on $730K for an asset worth $600K. That’s good for the bank, stupid for him, so that’s his offer.
    See! You aren’t being punished for being responsible. You are being punished for being dumber than the other two. Sorry for being so blunt.
    And in case you haven’t figured it out, our economy is really very boring without people like the other two buyers. If all we have is you, get ready for 12% unemployment forever. It’s the other two guys that drop it to 6%. We need them. You are a foregone conclusion, so we really don’t need you.
    It’s what the world is realizing about Greece and Spain. They couldn’t really afford anything they bought from the rest of the world, so loaning them money made all the difference and kept a lot of Germans and Americans employed. Even if they only pay about 50% of it back, it kept the economy humming and was worth it. The lenders and insurers will take a hit for the team.
    Without Greece and Spain buying far more than they can afford, the economy is certainly tipping into another recession, which is why the markets and commodities are falling.
    Cue the fed. QE3-7 isn’t going to solve anything, each time does less and less, and we really need another world war (or at least a good epidemic) to solve the problem, but as long as we are about to go through yet another deflation, it gives them cover to inflate to keep the whole artificial scheme going until after the election, after which time they’ll let the air out a bit faster.

  10. Posted by Rillion

    “No one is ‘rewarding’ anyone. The name of the game is to suck as much money out of people as possible. You can afford to pay, so sucking money out of you is easy and it will be done to the maximum degree possible.”
    Yeah, well two can play at that game. My underwater 1st is I/O at 3.375%, so its not really sucking that much money out of me. Also my 1st payment, taxes, and HOA total to significantly less then I would pay to rent a place (I’m actually paying less for my 2/1 then my friend pays to rent his 1/1). So its not an irrational emotional attachment that keeps me from walking away, its a cold emotionless financial calculation.
    As for my 2nd, I’m currently in the process of seeing how much money I can suck out of them. After all, what are they going to do, foreclose? It would cost them more to pay off the 1st then the house would sell for. My guess is that in a year or two they will be open to accepting the token amount of $ I’m willing to toss their way in exchange for releasing the lien.
    Figure if the banks or the government aren’t going to help me with a program I’ll create a 2nd Mortgage Principal Reduction Program of my own.

  11. Posted by NoeValleyJim

    You nailed it tipster.

  12. Posted by Brahma (incensed renter)

    From the Los Angeles Times on May 23rd, BofA to offer rentals as foreclosure alternative:

    Bank of America says it has begun a pilot program offering some of its mortgage customers who are facing foreclosure a chance to stay in their homes by becoming renters instead of owners.

    The “Mortgage to Lease” program, which was launched this week, will be available to fewer than 1,000 BofA customers selected by the bank in test markets in Arizona, Nevada and New York.

    Participants will transfer their home’s title to the bank, which will then forgive the outstanding mortgage debt. In exchange, they will be able to lease their home for up to three years at or below the rental market rate. The rent will be less than the participants’ current mortgage payments and customers will not have to pay property taxes or homeowners insurance, the bank said.

    …among requirements to qualify for the program, homeowners must have a BofA loan, be behind at least 60 days on payments and be “underwater,” owing more on their mortgages than their homes are worth.

    The bank based in Charlotte, N.C., said it will at first own the homes, then sell them to investors. If the program is successful, it could be expanded to include real-estate investors who buy qualifying properties and keep the occupants on as tenants.

    They’re basically trying anything that stops the overall price level from lowering to the true market-clearing level.
    I found it interesting that they chose those states for initial testing of this program, although I have no doubt that they’ll roll it out in California if it makes the bank money in the test markets, or at least substantially reduces their losses. From what I’ve read, New York is a judicial forclosure state, but non-judicial is more common in the other two.

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