Loan Modifications, Not Government Bailouts May Be the Answer
- By:
- Bill Rice | October 07, 2008
Bank of America Swallows Countrywide's Poison Pill
Bank of America, haunted by a toxic mortgage portfolio of interest-only and option ARMs originated by Countrywide, was being pursued by several State Attorneys General helping borrowers recover from potentially deceptive mortgage practices and products.
In a broad, multi-state settlement, Bank of America has agreed to work out as many as 39,000 borrowers according to statements by Bank of America--expected to reach $8.6 billion in loan work-outs and other related borrower compensation.
This predatory lending settlement is likely to eclipse that of Household Finance ($484 million) in 2002 and Ameriquest Mortgage ($325 million) in 2006.
Loan Modifications the Medicine
Taking a page from the IndyMac Federal Bank loan modification program, long advocated by FDIC Chair Sheila Bair, Bank of America will modify the mortgages of delinquent borrowers or homeowners likely to become delinquent due to adjusting interest rates or ballooning loan balances.
Like the IndyMac Federal Bank approach, Bank of America will first attempt to refinance borrowers into principle reducing Hope for Homeowners' government-backed loans.
Loan modifications are renegotiations of the original mortgage terms with the objective of avoiding foreclosure. Most loan modifications use the adjustment of one or more characteristic loan terms (i.e., interest rate, term, or principle) to create a more affordable, sustainable mortgage payment.
IndyMac Federal Bank and Bank of America loan modifications both seem to be targeting similar work-out structures: lower interest rates (as low as 2.5%) for a period of time, lengthening the term, or reducing principle in an effort to reduce monthly payments below 34% of the borrowers current (verified) monthly income.
This program will earmark $150 million for relief of borrowers in foreclosure, $70 million to provide financial assistance to borrowers who will lose their homes, and $220 million for residents of additional states expected to sign the Back of America agreement.
Currently, California, Florida, and Illinois attorneys general, the most aggressive pursuers of the agreement, are signatories. However, Arizona, Connecticut, Iowa, Michigan, North Carolina, Texas, and Washington are expected to quickly sign-on to the agreement as well.
Loan Modifications May Yield More than Expensive Bailouts
Although motivated in different ways the FDIC and Bank of America loan modification plans seem to be pointing to a more efficient, and financially sound way of stemming the housing crisis.
Keeping homeowners in their homes arguably is the quickest way to put a floor on housing prices--the core of all our recent economic and market instability.
Bankruptcy Reform Back on the Table
- By:
- Bill Rice - MortgageLoan.com | November 21, 2008
One of the earliest ideas for helping homeowners facing mounting mortgage debt and potential foreclosure on their home was to reform bankruptcy laws. The concept is now officially back on the table, introduced into the Congressional lame-duck session by Senator Richard Durbin (D-IL).
TARP is Closed for Relief Until Further Notice
- By:
- Bill Rice - MortgageLoan.com | November 20, 2008
Remember what a crisis the $700 billion mortgage market bailout was--the very existence of the American financial order hung in the balance.
Fixing the Housing Market, Lots of Ideas...Any Answers?
- By:
- Bill Rice - MortgageLoan.com | November 19, 2008
Almost a year into the dawning of the housing crisis (many chronologist are setting that around the January 2008 crumbling of Countrywide) ideas continue to flow, but few seem to be the answer. In fact, this seems to be the growing consensus--there is no silver bullet.
G-20 Lots of Motion, Will There Be Action?
- By:
- Bill Rice - MortgageLoan.com | November 18, 2008
The 20 most powerful industrial nations, and now the caretakers of an unprecedented global financial crisis, assembled in Washington DC over the weekend. Their mandate was broad and daunting--stabilize world markets.
FDIC Challenges Treasury with New Loan Modification Proposal
- By:
- Bill Rice - MortgageLoan.com | November 17, 2008
On the heels of the Treasury and Federal Housing Finance Agency's (FHFA) loan modification plan for Fannie Mae and Freddie Mac, the FDIC releases their own proposal. In this unprecedented, unilateral, and aggressive move by a Federal agency the FDIC is essential fighting a very public political battle directly with the Treasury and the current Administration.
Mortgage Rates Drop for Second Straight Week
- By:
- Bill Rice - MortgageLoan.com | November 14, 2008
Another week of dismal economic data have again pushed down mortgage rates. Freddie Mac reported Thursday that 30-year fixed-rate mortgages averaged 6.14 percent, down from 6.20 percent last week. This demonstrates a steep decline from 6.46 percent two weeks prior.
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