Bank of America has begun the process of reducing eligible homeowner’s mortgages. Thousands of letters have been sent to home owners in the United States, offering to reduce the price of the outstanding principal balance on their mortgages. Earlier this year, Bank of America agreed to a $25 billion settlement agreement with the state attorney generals in 49 states and federal authorities. The mortgage reduction efforts occurring are a result of this agreement
Pressure had been mounting from state attorney generals and the federal government on Bank of America for some time. There had been allegations of foreclosure abuse, loan abuse and improper lending. Many place blame on the bank for helping to create the foreclosure crisis, but feel they weren’t shouldering their fair share of the burden with the clean-up efforts. When state governments threatened to take legal action and federal investigators began launching investigations into their business, Bank of America finally relented and agreed to the massive settlement agreement
According to Bank of America, the average mortgage reduction will amount to $150,000 per homeowner, with eligible households shaving up to 35 percent off of their monthly mortgage bill every month. They estimate that more than 200,000 homeowners could potentially be eligible for assistance under this program and they hope to have letters mailed to the majority of them by fall of this year
In order to be eligible for the reduction, the homeowner must have a loan that is owned or service by Bank of America, have a home that is underwater, or is worth less than what the mortgage owed on it is, and have been sixty days or more behind on their payments as of January 31, 2012
According to Ron Struzenegger, a legacy asset servicing executive, “To the extent principal reduction and other modification tools help us turn mortgages headed for possible foreclosure into long-term performing loans, it will be positive for homeowners, mortgage investors and communities.”
Bank of America released a statement indicating that trial reduction offers were sent to approximately 5,000 eligible homeowners in March 2012. Those eligible for the trial reduction met the eligibility requirements and were already in the process of obtaining a home mortgage modification. Bank of America is estimating that mortgage reductions on these homes alone will amount to more than $700,000,000
While Bank of America is working to do their part, they warn that those who are selected for the program must also be willing to help themselves. Once the trial reduction is approved, three reduced payments must be made on time. If they are made on time, the reduction will become permanent. However, if the reduced payments are not made on time or not paid in full, the homeowner will forfeit their eligibility status in the program
While many of those in the industry feel this is a step in the right direction toward cleaning up the foreclosure mess, it remains to be seen how much of an impact this program will have and exactly how many home owners will benefit.