Wednesday, March 24, 2010

BofA to cut mortgage balances for some borrowers

Bank of America announced Wednesday that it will first look at reducing the loan balances of certain distressed homeowners with subprime or adjustable rate mortgages to make their payments more affordable.

The move makes Bank of America (BAC, Fortune 500) one of the first major loan servicers to incorporate the controversial loan modification technique.

Financial institutions, as well as the Obama administration, have come under increasing pressure in recent months to add principal reduction to their foreclosure prevention efforts.

When modifying mortgages, Bank of America will initially consider reducing the balances of borrowers with qualifying subprime, Pay-Option ARMs and prime 2-year hybrid ARM loans to bring down the monthly payments to 31% of pre-tax income. Currently, banks first look to reduce interest rates or lengthen the term.

Homeowners who are at least 60 days late and whose mortgages total at more than 120% of their home's value can have their balances reduced over five years by a maximum of 30%.

Borrowers must first qualify for the servicer's National Homeownership Retention Program. The program was developed as part of a 2008 settlement with state attorneys general to assist Countrywide Financial Corp. borrowers with subprime and Pay-Option ARMs. Countrywide was acquired by Bank of America in July 2008.

Pay-Option ARMs allow borrowers to make tiny monthly payments, but the unpaid interest is tacked onto the mortgage balance.

The bank expects that 45,000 borrowers will qualify to have their loan balances reduced by a total of $3 billion. The program is set to begin in May. To top of page

Posted via web from The Newport Beach Lifestyle

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