The New York Times has posted an article about the Bank of America’s decision to forgive some homeowner’s mortgage debt in order to prevent them from losing their homes. However, the program, available “by invitation only,”
signals a significant shift in efforts to deal with the millions of homeowners who are facing foreclosure. It comes as banks are being urged by the White House, members of Congress and community groups to do more to stem the tide.
As the housing market shows signs of possibly entering another downturn, Bank of America’s program may put pressure on other big banks to also have more options for homeowners who are delinquent with their payments.
With the volume of sales falling, prices are sliding again. When the gap increases between the size of a mortgage and the value that the home could fetch in a sale, owners tend to give up.
Cutting the size of the debt over a period of years, however, might encourage people to stick around. That could save homes from foreclosure and stabilize neighborhoods.
The program is mainly aimed at people who obtained loans from Countrywide Financial, a very large and aggressive lender back in the housing boom. Bank of America bought out Countrywide in 2008. Officials say that the maximum loan reduction would be 30% and the balance of they saved money would be moved to a special interest-free account.
Bank of America said its new program would initially help about 45,000 Countrywide borrowers – a fraction of the 1.2 million Bank of America homeowners who are in default. The total amount of principal reduced, it estimated, would be $3 billion.
The bank said it would reach out to delinquent borrowers whose mortgage balance was at least 20 percent greater than the value of the house. These people would then have to demonstrate a hardship like a loss of income.
These requirements will, the bank hopes, restrain any notion that it is offering easy bailouts to those who might otherwise be able to pay.
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