Borrowers/sinners: Some is forgiven

Thursday, March 25
Written 9:20 a.m. EDT

UPGRADE: We're switching to an improved blogging platform in a week or so. This blog will be published in WordPress, and we'll have comments, a more functional archive, subject tags, and faster (and more frequent) updates. I'm excited about that last improvement -- because of technical issues, this blog can be updated only at certain times of the day, preventing me from posting immediately in response to events. That will change when we move to WordPress. I will post more frequently, and the posts will be shorter.

The RSS feed will work better and faster, but the URL will change. We'll publish the updated URL when the new RSS feed goes live.

This will happen when I return from vacation. I'm taking tomorrow off and all of next week. There's lots of stuff happening in the mortgage world, so I'm crossing my fingers, hoping we have guest bloggers posting in this space next week. If all goes as planned, my next post will be on the new platform, on April 5. And again, the blog will have a new URL, which you will find here when the switch is made.

BofA'S PRINCIPAL FORGIVENESS: Yesterday was a crazy day. From Boston to Charlotte, N.C., from Los Angeles to Washington, D.C., everyone woke up and decided it was going to be Mortgage Day. I wrote three articles on three separate and complex topics, and that was after triaging a couple of other stories that I researched but didn't have time to write about -- February new home sales, and a legal settlement between Citi and 35 state bank regulators. I spent a chunk of my day squinting at home-sales statistics and 10-Q filings, and listening to bankers and attorneys general. It required mind-warping shifts in focus.

One of the articles was about Bank of America's announcement that it will forgive principal on some toxic mortgages that were originated by Countrywide (and inherited by BofA when it bought Countrywide). If I had had more than an hour and a half to write the article, I would have included more context and more detail, yet it probably would have been shorter.

One thing that I didn't mention is that BofA's principal reduction program generally is for borrowers who are 60 or more days late on their payments, and who can document hardship (such as loss of income). That's what I was getting at when I wrote that BofA's principal reduction program is "the first step of HAMP-style loan modifications." A mortgage servicing loss-mitigation specialist might have understood that implicitly, but the average homeowner wouldn't have.

But what about the context of this announcement? For a small subset of customers, Bank of America will forgive mortgage principal, and not just on a case-by-case basis. Principal forbearance or forgiveness will be the first step in an automated process. As Kimberly Miller writes in the Palm Beach Post, the plan "was virtually unthinkable just months ago."

Will other servicers offer principal reduction routinely as part of their foreclosure-prevention efforts? I'm eager to find out. I predict that, fairly soon, consumer advocates will begin pushing the idea that loan modifications without principal reduction are, in some cases, examples of predatory lending. When the lender modifies your mortgage, even though it knows that you're very likely to end up in foreclosure anyway, it's easy to make the case that the lender is milking you for a few more payments.

RATES: Mortgage rates went up a small amount in this week's survey. But, as I wrote in the mortgage analysis that I just linked to, our survey didn't capture all of yesterday's abrupt rate rise. Mortgage rates went up a solid one-eighth of a percentage point yesterday, and maybe more than that with some lenders. And they're poised to rise even more today.

Read more mortgage blogs.


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