According to CBS News, Bank of America announced a program this past week that would make up to 30% cuts on the principal balances for certain homeowners. Housing economists say that cutting principal on home loans is one of the quickest ways to remedy the current foreclosure crisis. Most banks until now have refused to do so. Bank of America’s move came as a result of a possible lawsuit against its Countrywide branches, and to try to prevent the process of strategic foreclosure (when homeowners walk away from their homes to heighten cash flow). The announcement of the program came just days before the Obama administration announced its FHA refinance plan for underwater homeowners.
No matter the motives behind the move, the situation is good for everybody. While you may not be directly benefitting from the program yourself think of this scenario: If your neighbors’ houses continue to go into foreclosure, this decreases YOUR property value, too. It is a domino effect.
Hopefully, Bank of America will start a trend among other lenders who will begin to cut principal balances for struggling homeowners.
Here are some of the details of the BofA program:
* Invitation only: don’t call your local BofA banker and expect him to lop off tens of thousands of dollars from the loan-the bank will contact you if you qualify
* The program is for Countrywide borrowers
* Loan balance must be at least 120% of the estimated home value
* Borrower must be at least 60 days overdue
* Borrower must demonstrate financial hardshipOnly the riskiest loans are eligible program-that includes:
* Sub-prime loans
* “Option adjustable-rate” — the ones with low teaser payments that adjust higher
* Some loans that have a fixed rate for two years and then adjust annuallyThe bank estimates that 45,000 customers only will qualify (BofA currently holds 1.2 million loans that are in default) for principal reductions that will average approximately $60,000.
CBS discusses the program on The Early Show.
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