As per the quarterly filings,
Bank of America Corporation
) has not been able to complete a large number of mortgage
modifications under the $25 billion settlement deal that also
JPMorgan Chase & Co.
), Ally Financial Inc. and
Wells Fargo & Company
). BofA's commitment under the deal was $11.8 billion, including
approximately $7.6 billion in borrower assistance, together with
targeted principal reduction.
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
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Under the settlement deal, these five banking majors are required
to bring down the loan amount of about 1 million homeowners, who
are at a risk of foreclosure. They will be required to firstly
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
In May, BofA started 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 anticipates that on an average, these
modifications will lead to a 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%.
Yet, BofA is falling behind in the mortgage modification process as
it is consuming more time to underwrite the modified loans. In
comparison, JPMorgan, in its quarterly filings, stated that it has
wrapped up a considerable part of loan modification program.
Likewise, Wells Fargo anticipates finishing its mortgage
modification process two years prior to the target date.
BofA stated that interest rate modifications are anticipated to
include nearly 20,000-25,000 loans (underwater properties) that in
total have $5.4-$6.8 billion in unpaid principal balance. Further,
with an average interest rate reduction of about 2%, the company
expects an annual decline of roughly $100-$130 million in interest
Though the settlement deal came as a big relief for the banks, they
are required to meet targeted commitments or pay fines instead. If
BofA and four other banks are not able to meet the targeted
modification commitments over a period of three years, then they
could face penalties of 125-140% of the deficit. These banks are
required to complete 75% of the targeted commitments by the end
2014 and the remaining in the next 12 months.
BofA is already reeling under the impact of the sluggish economic
recovery and effects of the various regulatory reforms. Hence, its
slow mortgage modification procedure could lead to huge financial
BofA currently retains its Zacks #3 Rank, which translates into a
short-term Hold rating. Also, considering the fundamentals, we
maintain a long term 'Neutral' recommendation on the stock.