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BofA’s mortgage giveaway

By Polyana da Costa · Bankrate.com
Thursday, May 10, 2012
Posted: 12 pm ET

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.

Follow me on Twitter @Polyanad.

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26 Comments
Nelson Venezia
July 08, 2012 at 1:08 am

Joe,
I would like to learn more about the afterlife of a loan once I sign the docs at escrow. I'm thinking that if there is no longer a note and trail of origin, how can the servicer foreclose?

Vicki
July 07, 2012 at 5:09 pm

I'm with you, Eric! We are also "doing the right thing". 3 figures underwater, and all we've asked GMAC to do is to re-finance our 7.25% mortgage to a lower interest rate. No late pays, high credit scores, but we were denied. Reason? I was laid off my job, so instead of sitting home and collecting unemployment, I started my own business and now make more than I did when employed. However, they won't count my "self-employment" income, and we can't "qualify" on just my husband's salary. They don't seem to have a problem cashing our check every month, though. Maddening!

Thomas Sparandera
July 05, 2012 at 5:24 pm

I have to agree with Mayra!
A home might be a "consumable" item from now on, but I would rather "own" one than rent--and I speak from experience.
I lost my first home in the late 90's due to the ".com bust" and
then rented 3 separate times in New Jersey trying to improve my families life with better rentals each move.
Although they got more expensive each time, the quality never improved enough to justify the cost.
The landlords did nothing, the rugs were stained and old and the walls were always whitewashed a pale white color!
Cabinets were always "ancient", doors let in excess air and appliances were dirty and semi broken.
I am not talking about slums or bad neighborhoods, I am talking about upper middle-class neighborhoods in North Western NJ!
After 10 years of being treated like a second class citizen, we reentered the housing market 3 years ago and fixed up an old home in a cute little neighborhood in PA.
We feel great again, I have color on all of my walls and I put in all new appliances.
We aren't making money on this home, but it is safe and clean and cute and the neighborhood is quiet with really nice people.
We are grateful we found such a gem of a neighborhood and a chance to start over even though we are in our 50's.
I still believe...

Tom

Joe
July 05, 2012 at 4:36 pm

Your above article is all well and good, but don't be fooled by the hype of the banks not being in favor of this type of legislation once adopted it legally gives the bank the chance to foreclose under new policy law which is what they are looking for, new laws that supersede their initial crime of fraud, deception and too big to fail status.
The bottom line is the major US banks are working with most state and federal legislators to enact laws that get them out of the mess they got themselves into by defrauding county recording and registrations of mortgage transactions. In March 2012, 49 of the 50 State Attorneys Generals of the US won a decisive victory over the fraud committed by the 6 major banks and won over $250 billion in fines paid and shared by each State. (research the lobbyist dollars spent on Politicians by the Banking Industries since 2010)

The Banks (the servicers of your mortgage loan is most likely not your original Lender) they are not the true owners of the properties they are foreclosing on. In 80-90% of previous and to date foreclosure cases they can't produce the original note and or mortgage document or show continuity in the mortgage which entitles them to foreclose as interested parties in the property.

In the majority of cases since the early 1990's 85% of mortgage were packaged by mortgage broker for a lender bank. That initial lender bank sold or placed your mortgage with an investment bank prior to your closing for 1 1/2 times your original mortgage amount making a hefty profit for the lending bank and your mortgage broker and most likely assigning interest in your loan to MERS a NY Corporation with no legal status and owned and operated by a majority of the top US Banks who would record your note to a excel spread sheet and securitize it out to the investor who would bundle it with thousands of other mortgage loans to investment banks to be sold as a RMBS (residential mortgage back security) stock or trust instrument which means that the original mortgage note would have to be destroyed because you can't have a note and stock issued at the same time the IRS and SEC rules forbid double dipping and would eliminate their entitlement to tax benefits for the Trust

Eric
July 03, 2012 at 12:57 am

This is just a terrible slap in the face. How about the person (me)that's doing the "right" thing, 70 grand underwater on a 280,000 mortgage, but isn't behind payments with a 6% mortgage? Where's the justice?

Anita
June 29, 2012 at 10:38 am

If you can short sale your home with a real estate agent, it's best to do it now before the end of the year. The loan forgiveness Act ends Dec 31 2012.I have worked with Bank of America on several sales and so far they do seem to want to help. I did not hear about this program, but I'm going to get more information so I can see how I can help some more of my clients out. It should be interesting.

TYRANNASAURAUS
June 22, 2012 at 12:10 pm

AMERICA SHOULD B ASHAMED. HAS HAD MANY OPPURTUNITES 2 SHARE THE WEALTH. SO YE SOW.....ETC NO ACTION W/O A REACTION. WHAT DID RICH FEW THINK WAS GONNA HAPPEN... I LOVE THIS COUNTRY BUT I WAS BORN INTO THIS QUAGMIRE... BS GETTING THICKER AND IF THERE'S HELL BELOW WERE ALL GONNA GO...

Tim
June 22, 2012 at 12:49 am

Great title, great PR. Details get worse as you read on. How much positive press will they get? A lot. How many homeowners will qualify? None.

mayra
June 21, 2012 at 6:28 pm

James sorry don't agree. Your home is where your children grow up, where you put them to bed at night, have dinners and celebrations. Its not just what $$ value you have in it. Even if my house is worth $1 I will not walk away. I am not selling right now so housing prices are low and I don't care. They can all tank. As long as my bed is nice and warm, my kids are happy its all good. What will I do? Move into a rat infested hell hole? Rent? Whre landlords don't care about their properties? Neighbors that don't care because they don't own anything? Is that better?? Thanks but I'll keep my house. Weather its worth $1 or $1million. There is no place like home.

james thompson, CPA
June 18, 2012 at 6:59 pm

Many of you would be better off, walking away, and not looking back. You are keeping something that no longer has any value, nor will it for the foreseeable future, decades. Moving on gives you freedom, and don't fret about credit scores, they will be moving higher within 2 years, if not sooner... Remember, Corporations are people too, according to Romney, and Corporations dump loser properties all the time. Why should we be any different?