Bank of America bold steps to reduce mortgage debt, foreclosure
Bank of America Corp. in the United States said it would reduce mortgage-loan balances as much as 30% for thousands of troubled borrowers, in what could presage a wider government effort to encourage banks to offer debt reduction to ease the mortgage crisis, The Wall Street Journal reports on Thursday.
The plan is one of the boldest moves yet to address the plight of millions of U.S. homeowners who are "under water," owing more on their homes than they're worth. In the United States, one in 438 homes was in foreclosure last month.
This could make it easier for the Obama administration to move in a similar direction with its existing loan-modification program. The government foreclosure prevention program launched in February 2009 aimed at helping 3 to 4 million homeowners to modify the terms of their mortgages. The program was designed to lower borrowers' monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms up to 40 years. The government has set aside $75 billion in subsidies to entice mortgage companies to participate. To complete the program, homeowners need to make three payments and provide proof of their income, plus a letter documenting their financial hardship. One year later, only 170,000 successful cases were registered.
The Obama administration is discussing with banks how to adjust its existing loan-modification program to encourage forgiveness of principal.
Comments