Bank of America and US Government Spearhead Effort to Decrease US Foreclosures

In a move that has come too late for a good number of struggling home owners, Bank of America announced in late March 2010 that it would reduce mortgage-loan balance by as much as 30%. A product of pressure by Massachusetts prosecutors, the government is attempting resolution to the mortgage crisis through debt reduction.

At least on paper, Bank of America's program that will begin in May would reduce the mortgage balances of about 45,000 homeowners nationwide who owe more on their mortgage than the home is worth.

Further details include specifics on how limited the program actually is. Those who qualify are borrowers will have missed at least two mortgage payments and must owe at least 20% more than what their home is worth. The loan type is important too: subprime mortgages or other loans with a two-year adjustable rate qualify. Balances may be reduced up to 30% at discretion of the bank, and then interest rate may be reduced too. The federal foreclosure prevention program "Making Home Affordable" is largely responsible for these guidelines.

Ultimately, debt will be forgiven if homeowners keep up with mortgage payments. Those who default on payments will face a balloon payment at the end of the mortgage to make up the difference.

The total debt forgiveness for Bank of America alone is projected to reach $3 billion which is an important figure because Bank of America is the largest mortgage provider, underwriting nearly one in five mortgages in the United States. Recent estimations show nearly 11.3 million homeowners underwater on their mortgages. Bank of America says that around 45,000 homeowners could qualify for their program, decreasing their average loan balances by nearly $62,000.

Other programs, like the government-subsidized "Home Affordable Modification Program" involve reducing rates and/or extending terms to 40 years, to shrink monthly payments. Unfortunately, even with a variety of programs designed to help homeowners, some have completely given up, citing a fear of not having any equity in the home or not being able to keep up with the payments and opting to go in to foreclosure.

If successful, programs designed to decrease foreclosures will allow the real estate market to recover, bringing home prices back up and decreasing supply and increasing demand. It should be noted that the program is complex and individuals should talk to their loan officer regarding their specific case. "Loan forgiveness" is only referring to an interest-free account that would hold the difference between what is owed on the property and the property's value meaning that eventually, the difference will be due (but interest-free).

"Bank Launches Big Plan to Cut Mortgage Debt". http://online.wsj.com/article/SB10001424052748703312504575141763259183050.html?mod=dist_smartbrief

"BofA initiative may reduce mortgage balances of underwater homeowners".

http://www.washingtonpost.com/wp-dyn/content/article/2010/03/24/AR2010032401310.html

"How Bank of America's Mortgage Write-Down Program Works". http://blogs.wsj.com/developments/2010/03/24/how-bank-of-americas-mortgage-write-down-program-works/