Bank of America to Help Distresssed Homeowners
Bank of America, one of the hardest hit lending institutions in the country, plans to offer nearly $3 billion in loan forgiveness beginning in May. The bank said Wednesday that it will forgive up to 30 percent of some customers’ total mortgage balance.
It was determined that to help the company stem greater losses, keeping people in their homes was their solution. By keeping homes out of foreclosure, Bank of America, while taking a loss initially on total principle, would be able to keep people in their homes, and paying a reduced mortgage.
Bank of America is taking an innovative “earned principal” forgiveness approach to HAMP modifications where mortgages are at least 60 days delinquent and the current loan-to-value ratio is 120 percent or higher.
- An interest-free forbearance of principal that the homeowner can turn into forgiven principal over five years which would result in a maximum 30 percent decrease in the loan principle balance, aiming to achieve 100 percent loan-to-value ratios.
- In each of the first five years, up to 20 percent of the forborne amount will be forgiven annually for borrowers that remain in good standing on their mortgage payments.
- Forgiveness installments for the first three years are set at the 20 percent level.
- In the fourth and fifth years, the amount of forgiveness will be updated based on the home’s value at that time. This is toensure that the loan-to-value ratio won’t be reduced below 100 percent through principal forgiveness.
Hopefully other institutions will follow suit and will help distressed homeowners recover from the housing market collapse in 2007. This is a bold, progressive move on behalf of Bank of America to encourage a recovery of homeowners in distress.
For more information, see Bank of America’s website.
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