BofA to start reducing mortgage principal – sort of
For homeowners struggling to stay current on a Bank of American mortgage, the news that BofA was going to begin forgiving mortgage loan principal must sound sweet. According to an article in Reuters, “homeowners who owe more than 120 percent of their home’s value or are battling ever expanding ‘negative amortization’ loans” could be helped.
Shortly after the news broke, I happened to catch an NPR interview with Jack Schakett, a loss mitigation expert at BofA. According to Mr. Schakett, the plan would allow affected homeowners to take that 20% that’s over market value and put it in a second loan. The homeowner would continue to make payments on the remaining principal. For each of the next five years, 20% of the original amount in the second loan would be forgiven, as long as the homeowner stays "in good standing" on the primary loan.
It’s important to note that for now, the program will be tested on only 45,000 homeowners with certain very high risk loans. The thought is that it will be expanded to other homeowners, and that other lenders will follow BofA’s lead. The goal is to enable more people to stay in their homes and to reduce the amount of loss to the lender.
A few things come to my mind right away: for one, what about the folks who have similar loans but are staying current? Doesn’t this program unfairly discriminate against them? For that matter, what about those homeowners who are also upside down in their loans – high risk or otherwise -- but can continue to make payments? Shouldn’t they get a break, too? And how long will it take for the pilot program to demonstrate that it’s working – or not working?
I’ll be keeping an eye on this.
Posted by
Vicky Nann
on 03/25/2010