Bank of America has recently announced it will now grant principal reduction to borrowers in some specific cases. Homeowners who originally had Countrywide subprime loans, pay option adjustable rate mortgages (ARMs), and prime two-year hybrid ARMs with a principal balance of 120 percent or more will now be eligible for principal balance reduction. This is part of a new Bank of America initiative to address mortgages severely underwater - those who owe more on their home than it is worth and who are very delinquent in their payments.
The bank estimates that 45,000 borrowers will benefit from this earned principal forgiveness program, with about $3 billion being granted in principal reduction. All of these changes will take place under Bank of America's National Homeownership Retention Program (NHRP), originally developed and launched in 2008 in cooperation with several states' attorneys general as a way to deal with the subprime mortgage crisis.
When Bank of American acquired Countrywide in July 2008, they removed pay-option ARMs from its product line, but there are still thousands of borrowers just now experiencing the consequences of their adjustable rate mortgages. These are the people Bank of America is looking to help through the newest components of the NHRP. The full list of adjustments include this first look at principal reductions to those loans which are severely underwater, principal forgiveness through a reduction of negative-amortization on certain pay-option ARMs, conversation of some pay-option ARMs to fully amortizing loans, addition of certain prime two-year hybrid ARMs as eligible for NHRP modification programs, the inclusion of Countrywide mortgages originating before January 1, 2009, as eligible for NHRP modifications, and a six month extension of the NHRP to December 31, 2012.
Though many homeowners are sure to benefit from these new guidelines, the interests of mortgage investors will not be neglected. Through the new NHRP adjustments, principal balance forgiveness will be tied to the homeowner's performance, which decreases the chance of default on the property in the future. In essence, Bank of America is acknowledging that giving borrowers a break on their mortgage payments - especially those with subprime loans - will actually cost them less in the future.
This innovation, the earned principal forgiveness program, is available for loans which already meet NHRP requirements and also qualify for the government's Making Home Affordable Program (HAMP). It includes homes that are at least 60 days late on their mortgage payments and who have a loan-to-value ratio of 120 percent or higher, therefore making them severely underwater.
The program also includes several possible solutions for homeowners who find themselves in such a situation. An interest-free forbearance can be offered to the homeowner, who can then turn it into principal forgiveness over five years. This would result in as much as a 30 percent drop in loan-to-value, bringing it down to 100 percent. For borrowers that remain in good standing with their mortgage payments, 20 percent of the forborne amount will be forgiven annually. In the first three years, forgiveness installments will be set at 20 percent. The forgiveness installments in the fourth and fifth years will depend upon the value of the property.
All of this equals good news for homeowners in negatively amortized or subprime loans from Countrywide, especially those severely underwater on their properties. The National Homeownership Retention Program's newest initiatives finally appear poised to offer some relief for those suffering the most. That said, having an attorney assist you with your loan modification process is now even more important, as there are more options and real possibilities for saving your home and preserving your finances.
Here at P&P, we have much experience dealing with the loan modification process and working with Bank of America in particular. These new guidelines will serve borrowers hit the hardest by subprime loans, whom we have been assisting for years. Our experience will provide assurance that you are placed in the best situation possible through all these new principal forgiveness initiatives. Contact our office today to learn more about the new Bank of America principal reduction guidelines or to schedule a free consultation.
