If your mortgage is owned by Bank of America, you may get a pleasant surprise in the mail in the next few days.
The bank has started reaching out to more than 200,000 borrowers who may be eligible to receive partial loan forgiveness. Those who qualify will save about 30 percent on their monthly mortgage payments.
The first letters have been mailed this week, the lender says.
So here is the fine print
To be eligible for this principal reduction program, a borrower must:
- Owe more on the mortgage than the home is worth.
- Have been at least 60 days behind on the mortgage payments, as of Jan. 31. (I don’t get it either but that's the rule.)
- Have monthly housing expenses of more than 25 percent of gross household income. The expenses include mortgage principal payments, interest, property taxes, homeowners insurance and homeowner association fees.
- Have a loan that is owned and serviced by Bank of America, or serviced for an investor who has given the bank the authority to do this type of modification.
Who's not eligible
If your mortgage is owned by Fannie Mae or Freddie Mac, you're not eligible. Why? Because the acting director of the agency that oversee the two entities, Edward DeMarco, says it shouldn’t be done.
Federal Housing Administration and Veterans Affairs loans are not eligible for this program.
Details on what you may be offered
Bank of America's initiative resulted from the recent $25 billion national mortgage settlement.
Bank of America says it will help "qualified underwater" borrowers by reducing their mortgage balance to as low as 100 percent of the home's value. Many of these borrowers owe significantly more than what their homes are worth. The lender will then modify the mortgage to reduce the interest rate to make the borrower's payment more affordable. If needed, the bank can offer additional payment forbearance on part of the principal.
But if the lender or the investor that owns your mortgage determines that it's more profitable to foreclose on your home than to offer you a loan modification, you may not get the deal.
According to Bank of America: "The settlement terms require a final calculation to determine that the cost incurred by the mortgage investor to modify the loan does not exceed the expected loss to the investor if it goes to foreclosure instead, commonly known as positive net present value."
Think taxes and credit
One more factor you should consider before accepting this or any other loan modification and loan forgiveness offer from any lender: How would this deal affect your taxes and credit score?
My story will walk you through some of the potential implications and questions you should ask before accepting these generous offers.
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