The White House announced another program designed to help homeowners headed for foreclosure. In addition, the nation’s largest loan servicer has swung into action with a new program that promises some possible relief by reducing the balance owed on a homeowner’s mortgage.
The government’s new program is specifically targeted at homeowners who are behind on their mortgages due to unemployment. Borrowers have to be collecting unemployment benefits and be less than 90 days late on their mortgages. The program does not provide forgiveness, as any missed payment will be tacked on to the loan balance to be paid later. It is not clear whether homeowners whose unemployment benefits have terminated will also be helped. While this is good news for a small slice of those borrowers in distress, it does not address the needs of the millions of people facing imminent foreclosure.
Another program, again one that is narrowly defined, is designed to help homeowners whose homes are slightly under water. If the old lender is willing to forgive debt that exceeds 115 percent of the home’s value, the government-controlled FHA program would issue them a new fixed rate loan. At that loan-to-value, borrowers are untouchable under loan standards now in place. The borrowers would need to qualify for the new loan payment, but it gives them a presumably lower payment and a risk-free loan.
The government also acknowledged that out of 1.1 million borrowers who had been offered temporary modifications, only 170,000 people successfully transitioned to a permanent modification. This number is further evidence that the foreclosure prevention programs have not been well designed.
Bank of America is offering borrowers holding so-called Option ARMs the ability to get a new loan, one with a principal balance as much as 30 percent less than their current mortgage balance, if they are under water. Of the forgiven loan amount that would be set aside, 20 percent would be forgiven each year if the borrower continues to make payments. At the end of five years, the entire amount would end up having been forgiven.
This is another very modest program whose borrowers must have a specific type of loan, be behind in their payments, and have a loan balance greater than the value of the home. Not to mention that 45,000 is a small percentage of the well over 1 million of the bank’s loans that are currently more than 60 days delinquent.
This program will not likely hurt the company’s earnings as, according to the 2009 3rd Quarter 10Q filed with the Securities and Exchange Commission: “Certain acquired loans of Countrywide that were considered impaired were written down to fair value at the acquisition date.”
It’s worth noting that Bank of America had previously entered into an agreement in 2009 with the Attorneys General of most of the states that set aside more than $8 billion dollars to re-write the loans of these same types of borrowers, holders of Option ARMs. The bank has never reported statistics on the progress or performance of activities under these agreements.
The government and the industry keep waltzing around the edges of the problem. They are helping borrowers by the tens of thousands, while some analysts say that as many as 12 million borrowers are facing foreclosure over the next three years.
Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower articles, Randy is a mortgage broker who has financed over $1 billion in properties. He writes about home buying and real estate finance topics for CreditBloggers.com.
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