Want to Lower Your Mortgage? Open Your Mail!

As part of a $25 billion settlement agreement between the government and five major banks for fraudulent foreclosures, Bank of America agreed to $11 billion in mortgage principal reductions. In a recent move likely to increase that sum substantially, BofA has announced that it will offer principal reductions to 200,000 homeowners who qualify. Certified letters will be sent to 6,500 BofA customers this week, with additional letters being sent each week until all targeted borrowers have been contacted.

Borrowers who qualify could reduce their principal up to $100,000, bringing their monthly payment to 25 percent of their income. The 200,000 homeowners who receive notification that they are eligible for a reduction in their mortgage principal have been screened for eligibility, but they must qualify under the terms of the offer.

• Borrowers must be 60 days late on their mortgage payments as of Jan. 31, 2012;
• Borrowers must be underwater on their mortgage, meaning that their home is worth less than they owe on their mortgage;
• The mortgage must be owned by Bank of America or serviced by one of its investors.
• Borrowers must respond to the letter, providing proof of sufficient income to be able to make the modified mortgage payment;
• The borrowers’ current payment (before modification) must be more than 25 percent of their gross income, and borrowers are required to prove they cannot afford their current payment. Unemployed homeowners and those with income would likely not be able to provide proof of sufficient income to qualify.

Similar mortgage principal reductions have been supported by the International Monetary Fund and are encouraged in the government’s Home Affordable Modification Program (HAMP), which provides monetary incentives to lenders for each dollar in principal reduced. That incentive has just been extended to Fannie Mae and Freddie Mac via modifications to HAMP; however, Fannie and Freddie have not yet committed to participating in principal reductions. Therefore, Bank of America mortgages which are serviced by Fannie Mae or Freddie Mac are not yet eligible for this round of principal reductions.

The targeted homeowners were chosen by determining their home’s present value and validating that a principal reduction would be less costly to the Bank of America and its investors than foreclosure. The mailings to those 200,000 borrowers will be staggered to enable staff to assist homeowners and process the necessary paperwork — in the meantime, Bank of America has stated that it will suspend all foreclosure actions against those 200,000 borrowers until they have had an opportunity to respond and determine if they qualify.

Bank of America borrowers who receive one of these letters are urged to reply, providing the information requested to determine if they qualify. Failure to respond within the designated timeframe will exempt borrowers from this offer and could result in reinstated foreclosure proceedings.

Bank of America is just one of several banks that have increased their support of reducing mortgage principal as a means of preventing foreclosures. In an another recent move, Bank of America launched a pilot program called Mortgage to Lease, offering select homeowners an opportunity to surrender ownership in a deed in lieu of foreclosure and rent their home back from the bank to prevent foreclosure.