In an effort to help homeowners avoid foreclosures, the financial institution stated it would forgive principal for homeowners who owe more than 120 percent of their home’s value and also meet other qualifications, says ABC News. The program is going to go into effect in May and will first forgive mortgage principal and then reduce interest rates for those who qualify.
Homeowners have to have one of the following loans: “a subprime loan; a ‘pay-option’ loan, which allows borrowers to make a lower payment that can result in the unpaid portion being added to the principal balance; or a prime two-year hybrid loan, which often starts as a fixed-rate loan, but then the interest rate rises,” ABC News said.
“It’s a great idea. It’s quite encouraging,” says Mark Zandi of Moody’s Economy.com. “It’s a very strong incentive for borrowers to remain current. If this can be broadened to more (mortgage) servicers, it could make a significant difference. This is the first real principal write-down plan that has a shot at making a difference. It’s very creative.”
This is the first time a mortgage lender produced a program that targets “all three” types of loans. Hopefully, it will encourage other lenders to emulate Bank of America, says Jack Shackett.
“We think this may cause other servicers to look at what they’re doing,” said Shackett, credit loss mitigation strategies executive at Bank of America. “We think this is a significant step. … We are clearly talking to our customers about why we were having a lower acceptance rate (in the federal loan modification) program. This is to give them another reason to want to participate.” –terry shropshire
