Bank of America (Stock Quote: BAC) made big news nationwide recently when it announced that it would offer mortgage reduction deals to struggling homeowners — including those who took out risky option ARMs and other hybrid mortgages.
There’s little doubt that the demand for more lenient loan modification programs by struggling homeowners is rising.
According to RealtyTrac, the most recent survey of the U.S. foreclosure landscape is a grim one. In the first quarter of the year, the number of U.S. homes foreclosed by banks rose by 35% from the same quarter in 2009. Simultaneously, the number of U.S. homes edging closer to foreclosure grew by 16%, says RealtyTrac. “We're right now on pace to see more than one million bank repossessions this year," said Rick Sharga, a RealtyTrac senior vice president.
Maybe that’s why the news from Bank of America on March 24 created such a ripple — not only through the banking industry, but throughout millions of U.S. households, as well.
In a nutshell, Bank of America says it will prioritize principal forgiveness over interest rate reduction when examining risky mortgages. The new wrinkle comes at a time when the banking behemoth is, in its own words, “aggressively” beefing up its National Homeownership Retention Program (NHRP).As part of its new NHRP efforts, Bank of America promises to:
- Take a first look at principal reductions in calculating an affordable payment through an earned principal forgiveness approach to severely underwater loans.
- Pursue principal forgiveness through a reduction of negative-amortization on certain pay-option ARMs.
- Add more conversions of certain pay-option ARMs to fully amortizing loans prior to a recast.
- Add certain prime two-year hybrid ARMs as eligible for the NHRP mortgage modification programs.
- Begin the inclusion of Countrywide mortgages originated on or before Jan. 1, 2009, as eligible for modifications under the terms of the NHRP.
- Add a six-month extension of the term of the NHRP program to Dec. 31, 2012.