On February 8, 2012, the U.S. Department of Justice, along with the States’ Attorney’s General announced that they had entered into a $26 billion settlement with the U.S.’s five biggest banks, including Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial.
After hearing this announcement, and in the last few months, many homeowners are probably wondering why they haven’t seen any of this money.
The good news is that on May 8, 2012, Bank of America announced that it has began reaching out to customers who may be eligible for forgiveness of a portion of the principal balance of their mortgage under the terms of the February 8 settlement.
Bank of America is sending letters to more than 200,000 of its customers who are potential candidates for this program. The Bank sent approximately 5,000 trial modification letters so far, and plans to send several thousand letters each week to a new wave of homeowners. The bank is sending the letters out in weekly waves to avoid overloading their system.
The letters provide each homeowner with a description of the program and an invitation to provide financial information to begin the review process. To be eligible for this program, a homeowner must meet certain criteria, including:
- Owes more on the mortgage than the property is worth today.
- Was at least 60 days behind on payments on January 31, 2012.
- Has a contractual monthly payment for principal, interest, property taxes, hazard insurance and any applicable homeowner association fees totaling more than 25 percent of gross household income.
- Has a loan that is owned and serviced by Bank of America, or serviced for another investor that has given the bank delegated authority to do such modifications.
Fannie Mae, Freddie Mac and FHA/VA are not participating in the principal reduction program, but other modification programs which may provide comparable reductions in monthly payments are available on those loans.
According to a Bank of America Press Release: “A key goal of mortgage modifications is to provide an affordable monthly payment, based on borrower's ability to pay. Most modification plans begin with a reduction of the interest rate, then an extension of the number of years to pay off the mortgage, then if necessary, interest-free forbearance of principal to be paid back at the end of the loan. Bank of America has offered principal forgiveness, but in more limited, targeted situations to eligible borrowers with certain types of mortgages.”
Of course, like all mortgage modification programs, a homeowner is only eligible under this program if the loan modification provided the bank with a positive NPV (“Net Present Value”) result. In essence, this means that a final calculation will be run on the loan modification to determine if the cost incurred by the mortgage investor to modify the loan exceeds the expected loss to the investor if the loan goes to foreclosure instead. If the loan investor can do the modification more cheaply than the expected cost of the foreclosure, than the modification will be approved. If it is determined that the modification is more expensive than a foreclosure, the modification will not be approved.
In the end this is just another program that the big banks have implemented to try to deal with the foreclosure crisis. Like with all other modification programs, completing your application and actually receiving your mortgage modification can be very difficult and intimidating. If you are lucky enough to receive a letter under this program, it is important that you consult a professional to help you accurately complete your application. Please contact our office if you have any questions or concerns related to this program, or any other modification program out there.
See the Bank of America Press Release at http://mediaroom.bankofamerica.com/phoenix.zhtml?c=234503&p=irol-newsArticle&ID=1692738&highlight=
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