Bank of (everything in) America becomes the first bank to SAY it will forgive part of the balance owed on a mortgage to help homeowners avoid foreclosure.

Not that they are in any rush, the program does not start until May.

You must qualify under the HAMP program guidelines, and have missed at least two payments, to get a mortgage modification .

Bank of America bought Countrywide, the #1 offender in issuing sub-prime and other bad mortgages, just before the bubble burst  in 2008.

This was only slightly dumber than their decision to buy Merrill-Lynch, which had a bunch of its own sub-prime mortgages.

How much principal reduction will you get?

If your home is at least 20% underwater, up to %30 of the principal.

Which means, that your mortgage debt is more than 120% of the value of your house.

Bank of America guesses 45,000 homeowners will qualify.

My guess?

Lots more will qualify, no prediction here on how many actually get principal reductions.

I bet they have more than 45,000 in Michigan alone who qualify.

Nothing in the announcement about how they will calculate a value for your home.

Once you get the modification, you have to make all the modification payments in order to get the reduction in the principal balance, which will take years.

This is not done out of the goodness of, forgive the term, “heart”  of Bank of (everything in) America.

A bunch of state attorney generals sued Countrywide for its misdeeds, and this is part of the latest deal to resolve those suits.

Of course, I  have been yelling for judicial mortgage modification, changing the law to allow bankruptcy judges to re-write first mortgages in Chapter 13 cases, since before I started this blog.

The mortgage companies short circuited that effort by telling the politicians, “Don’t worry. Trust us.  We will make voluntary changes to fix the foreclosure crisis.”

Either that, or maybe it was all the campaign contributions they made, to both parties.

Instead of pushing for bankruptcy law reform, the Obama administration came up with HAMP.

HAMP is a failure by all accounts thus far.

We shall see how Bank of (everything in) America follows through, and whether any of the rest of the near criminal mortgage industry goes along..

Surprisingly enough, Bank of America stock rose on the news.

Foreclosures Avoided?

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American homeowners now $745 billion underwater on their mortgages, according to First American CoreLogic.

Sounds low to me.

2.8 million properties foreclosed in 2009.

And the trend?  Bound to get even worse.  Record high default rate now, as over 13% of homeowners are behind on their mortgage payments.

Why?  More ARMs (Adjustable Rate Mortgages) resetting this year and next, with expiration of teaser rates, payments will go up, more mortgage defaults, more foreclosures.

Not to mention the interest only mortgages, which are not sub-prime, which switch over to an amortized payment, $47 billion in the next year, $80 billion in the next two years.

Mortgage payments will go up 15%, more if interest rates go higher.  And there is virtually no room for them to go lower.

And 61% of the modifications actually agreed to by our mortgage company friends since October 1, 2008, are in default.

Government’s solution?  Hey, if we pay the banks some of their losses, maybe they will finally start to write down principal balances.

Only 21,000 of the loans modified in the third quarter of 2009 included principal writedowns, or deferrals.

My guess, more deferrals than actual writedowns.  One reason, investors are suing when principal is written off.

What good does a deferral do for the homeowner?

My favorite quote in the linked to Business Week story;  ”Mark Zandi, the chief economist for Moody’s Economy.com, who has testified before Congress on housing issues, proposes that banks receive a federal match of $1 for every $2 in principal reductions they offer to homeowners who were victims of predatory lending practices.”

So, let’s get this straight, mortgage company breaks the law, lends money it should not, probably cheating the homeowner.

Homeowner now stuck in home worth less then is owed, with unaffordable payments.

Remedy?

Another bailout for the crooked mortgage companies.

Well, they did spend enough of their ill gotten gains to buy both political parties, as each has supported TARP and further bailouts that have insulated the mortgage and banking companies from the consequences of their own actions, at the expense of you and me, the taxpayer.

Foreclosure Crisis Deepening

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Paul Goodman of the N. Y. Times reports that the government says its mortgage modification program is working!

Knock me over with a feather.

Of course, the government mortgage modification plan, is where they pay the mortgage servicers to enter into trial modification periods, three months long.

If all those payments are made on time, they might extend the agreement.

So, most of the claimed half-million modifications are still in that three month trial period.

And put together by the same people that created the bad mortgages to begin with.

I know my clients usually over estimate the amount of money they have available every month to pay the mortgage.  They want to keep their house!

And the government cannot tell how many of these “modifications” actually reduced the principal balance.

Only 1.9% of the ones done in 2008 did that.

So, at this point, these are mostly in the trial stage, and are just re-worked ways, by the mortgage company, for the mortgage company, for them to get back the entire amount owed on the loan.

Call me a skeptic.

Judicial mortgage modification is the only effective proposal out there.

Government Claims Its Mortgage Modification Program Is Working

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Bad, because the mortgage company is not likely to give you a modification that really helps you!

Professor Alan M. White of Valparaiso Law School has studied the modifications actually granted in 2008, and the results are not surprising to me, but give the lie to those who think the industry will agree to meaningful mortgage modifications.

What Are The Chances Of A Mortgage Modification Working?

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Mortgage modifications are not living up to the hype created by, well, the mortgage companies.
My friend April Charney, of Jacksonville FL legal aid, has been the leader in the fight for consumers and in forcing mortgage companies to prove they have the right to foreclose.
With permission, I reprint an email from her on this:

Summarized below is the data from the OCC / OTS 4th quarter/2008 metrics report on first lien mtg performance:

1. 2.4% of prime mtgs were seriously delinquent reflecting a doubling of the 1.1% seriously delinquent as of 3/08
2. 41 to 46% of the loans modified in 2008 that were seriously delinquent (past 90 days – 60 plus the 30 initial days) re-defaulted and “trend” expected to continue.
3. One reason cited for high re-default rates after loan mod is the capitalization of missed piti into the loan balance.
4. Another reason cited for high re-default rates after loan mod is the servicing agreements (the PSAs)…these servicing standards are said to have relaxed, but no source data to support this statement from servicers.
5. Re-default rates lower for loan mods that lowered monthly pymt obligation such that a 10% decrease in mo pymt obligation resulted in a 23% re-default rate (compared with a 51% re-default rate for loan mods with no pymt amt change and a 46% re-default rate for loan mods with increased pymt obligations)
6. The new catch phrases are “home retention” and “sustainable and affordable mortgages”.
7. Every bank and thrift must “assess their 2008 loan mods” (those already completed) “to ensure that criteria applied to those loans AND TO LOANS MODIFIED IN THE FUTURE RESULT IN MODIFICATIONS THAT ARE AFFORDABLE AND SUSTAINABLE.”

And, below is a summary of the ANALYSIS OF SUBPRIME MORTGAGE SERVICING PERFORMANCE – data report no. 2 issued by the State Foreclosure Prevention Working Group issued 4/2008:

1. The report is based on servicing performance data from 10/07 – 1/08 (so not as helpful but report indicates the data is nearly unchanged from 10/07 to 1/08)
2. 7 of 10 seriously delinquent borrowers (remember that is 60 plus the 30 days to equal 90 days delinquent at time of reporting by servicer) are not included in any loss mitigation (now home retention) process – suggests “systemic failure of servicer capacity…”
3. 66% of all loss mitigation efforts not complete in a month.
4. Seriously delinquent loans are “stacking up” on the way to foreclosure.
5. “…it appears that the level of paperwork required is a barrier to preventing unneccessary foreclosures.”
6. “…some of the largest national banks will be providing mortgage servicing data to the OCC on a monthly basis.” – WHERE IS THIS DATA????

(Click here  if you want to order a FREE copy of my book, The Consumer’s Guide to Defending Foreclosure.)

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     Not likely, but maybe.

     The official statistics on mortgage loan modifications for the last quarter of 2008 have been released y the Office of the Comptroller of the Currency and Office of Thrift Supervision.   Not a rosy picture.

     First, have all your ducks in a row, meaning, pay stubs, tax returns, anything you have in writing on the current value of your home.

     Also, documentation of your expenses, copies of utility bills.

     This may well be more than you were asked to provide when you first got the mortgage.

     But many of the problems I have blogged about stand in the way of the mortgage company doing a loan modification.

     Robin Sidel has some specifics of loan modification successes and failures in the Wall Street Journal.

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