Homeowners having mortgages with
Bank of America Corporation
), but facing difficulties in paying their loan amounts now have a
reason to cheer. BofA has started sending letters to those
homeowners who have the chances of qualifying mortgage
modifications as a part of the $25 billion global foreclosure
settlement deal that was approved by the court in April.
BofA will be reaching out to more than 200,000 potential
homeowners by mailing them the invitations to participate in the
loan modification program and provide necessary financial
information. The company will complete the mailing process by
BofA anticipates that on an average these modifications will
lead to the principal reduction of about $150,000 each.
Additionally, customers who qualify for this program will be able
to bring down their monthly mortgage payments by 30%.
According to BofA, in order to qualify for the program, the
customers must be delinquent for more than two months as of January
31, 2012 and be underwater (value of the property less than the
Additionally, the customers must hold loans, which are either
owned or serviced by BofA. Mortgages serviced by BofA for other
investors that have given the company the authority to do such
modifications are also eligible. Further, the homeowner must have a
contractual monthly payment for principal, interest, property
taxes, hazard insurance and any applicable homeowner association
fees of more than 25% of total gross income.
Process to be followed for Qualification
Though borrowers receiving the letters to participate are
eligible, BofA stated that it would be necessary for them to prove
that they actually qualify for this program. For this, the eligible
borrowers must answer the letter with full credentials of the total
household income. The document must show that the borrowers would
be able to make monthly payments after principal reduction.
Also, the present monthly loan payment must be more than 25% of
the gross total income and the customer must prove that he/she is
unable to afford that. Hence, if the borrower qualifies, BofA would
reduce the monthly loan payments to 25% of the borrower's gross
The Story Behind
Earlier in February, BofA along with four other mortgage
JPMorgan Chase & Co.
), Ally Financial Inc. and
Wells Fargo & Company
) - singed a foreclosure settlement deal with 49 states' attorneys
general and regulators. These banks were accused of committing
foreclosure mess (flawed paperwork and the use of 'robo-signers')
that led to the temporary suspension of foreclosures across the
country since October 2010.
Of these five banks, BofA was required to pay the largest share
of settlement amount, which is about $11.8 billion. Out of this
amount, $3.24 billion will be paid to states as penalties and the
remaining to the distressed borrowers.
Under the agreement, these banks are required to bring down the
loan amounts of about 1 million homeowners, who are at a risk of
foreclosure. They will be required to first lower the principal
loan balance to 100% of the present property value. Thereafter,
they would have to reduce the interest rate and additional
principal (if necessary) to arrive at the intended payment.
Similar Initiatives Undertaken
BofA has already begun the principal reduction program in March
by considering those homeowners who were in the loan modification
review process. Till now, approximately 5,000 modification
recommendations have been mailed, providing over $700 million in
reduced principal. However, the homeowners must make three timely
payments to make the arrangement permanent.
Additionally, BofA announced a pilot project - Mortgage to Lease
- that will allow the distressed customers (related to
foreclosures) to remain in their houses as the ownership of their
property would be taken over by the company. Only about 1,000
homeowners will initially be the part of this program. Under the
terms, the property owners will transfer the home ownership to the
company and in exchange, their outstanding loan balances will be
The primary idea behind the mortgage modifications is to offer a
reasonable monthly payment system, which is based on borrower's
capability to pay. We believe that BofA's various loan modification
initiatives will help prevent foreclosures. Also, it will
facilitate the revival of the housing market, which is reeling
under the effects of foreclosure mess and reduction in home prices.
All these have slowed down the country's economic growth, which is
further compounded by higher unemployment rates.
BofA currently retains its Zacks #3 Rank, which translates into
a short-term 'Hold' rating.
BANK OF AMER CP (BAC): Free Stock Analysis
CITIGROUP INC (C): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
To read this article on Zacks.com click here.