Housing Update: It begins – BofA announces principal reduction program…

Update 3: Ahhh BofA was facing the MASS AG Suit when they found religion. This is limited to the worst products in the Countrywide portfolio:

…The bank’s program is limited to Countrywide borrowers whose loan balance is at least 120% of the estimated home value, who are at least 60 days overdue, and who can show that financial hardship makes them unable to meet current payments. The bank estimated that 45,000 customers will qualify for principal reductions averaging more than $60,000.

Only the riskiest loans will be eligible. They include subprime loans; “option adjustable-rate” mortgages entailing minimal payments now but big increases later; and certain loans that have a fixed rate for two years and then adjust annually.

The bank’s move is part of an agreement to settle claims over certain high-risk loans made by Countrywide Financial, which the bank acquired in mid-2008. The Massachusetts Attorney General’s office, which was negotiating with the bank, said it was prepared to file suit had the agreement not included principal reductions….

Update 2: Some details from Reuters by way of CalculatedRisk:

From Reuters: BofA to start reducing mortgage principal-sources

Bank of America will … announce plans to start forgiving mortgage loan principal for troubled homeowners who owe more than 120 percent of their home’s value or are battling ever-expanding “negative amortization” loans.

According to a summary of the program obtained by Reuters, Bank of America pledged to offer an “earned principal forgiveness” of up to 30 percent in two stages. The lender will first offer an interest-free forbearance of principal that the homeowner can turn into forgiven principal annually over five years, provided they stay current on their payments….

Update: In an amazing coinkydink the IG just issued a report ripping the Obama Housing Plan to shreds just as these ‘voluntary’ principal reduction programs are announced, heh:

A government watchdog agency criticized the Obama administration’s $50 billion campaign to avert foreclosures by reducing mortgage payments for millions of distressed borrowers.

A report by the inspector general of the federal Troubled Asset Relief Program, or TARP, said results of the loan-modification program so far have been disappointing. The report, released Tuesday evening, also said that the U.S. Treasury has failed to measure results properly for the Home Affordable Modification Program, known as HAMP, and that it may merely delay foreclosures in too many cases.

When President Obama launched HAMP in early 2009, the government said it would help as many as three million to four million homeowners avoid foreclosure. So far, however, about 169,000 households have successfully completed trial periods and been given long-term payment relief…

I know this is unpopular. However, if we had done what Hillary proposed in 2007 (HOLC like FDR did) or what MAC proposed in 2008 (every homeowner getting a reduction to market rates, not forgiven, but the principal being non interest bearing and tacked onto end of loan), then IMO the housing markewould have cleared already.

Instead President Credit Suisse-UBS has continued with the EPIC fails of HARP, HAMP, extend and pretend, and we STILL face 5-6 million foreclosures in the year ahead.

Now Bank of America is doing what Sheila Bair at FDIC has been proposing for two years, they are writing down principle on underwater loans. ThThey are approaching it in a manner which ties the homeowner to the home, it can be done. So you ‘earn’ the forgiveness over a 5 year period of payments. This way underwater homeowners stay and the cash flow is assured for 5 years. Good deal.

The key issue IMO is with continued UE we cannot sustain the underwater walkaways, resets in pick a pay horror products AND the natural loss of homes to UE. Something needs to be done to clear it out before it continuesto snowball. We have entered the double dip in housing already, see sidebar for HousingWire and CalculatedRisk pieces.

Also recall please that the ENTIRE BASIS OF TARP was HOUSING. The way it was sold by Paulson was that it was a vehicle to purchase MBS and CDS b and free the banks from the problem. Had they done this they could have done HOLC like FDR, bought the loans and written them down in one fell swoop (and anyone who thinks taxpayers arent already backing these collapsing loans hasnt been paying attention- FAN FRED which now have an UNCAPPED TAXPAYER GUARANTEE from treasury, are backing ALL the remaining loans being writtern today). See our piece this week on FAN FRED .

Diana Olick reported it on CNBC this morning, PS MiM are BofA shareholders) when the video comes up we will post!

forgive typos, on the go with the netpad EEEPC which is kewt but doesnt show the whole box I am typing in right now, arrgle!

March 24, 2010. Tags: , , , , , , , , , , , . Economy, FDIC, Finance, Foreclosures, Housing, Obama Administration, Politics, TARP, Taxes, Unemployment Statistics.

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