As a homeowner during this difficult economy, you may have heard of the Bank of America settlement, where they are supposed to apply $17 billion towards assisting homeowners with underwater mortgages. Under the most recent settlement, they are to allocate a minimum of $2.15 billion specifically towards principal reductions. However, we can tell you from experience that principal reductions are rarely seen.
So how does Bank of America get away without processing many principal reductions while being scrutinized by the government? There are only two possible ways of eating through $2.15 billion, and if they’re not processing large numbers of reductions, then they must be doing fewer reductions at higher values. As part of the 2012 settlement, Bank of America forgave $4.6 billion in mortgage loans. The average principal reduction was $160,905 for each homeowner. The median home price in the U.S. is around $188,000. The numbers prove that average homeowners are not the ones being offered principal reductions.
Why is Bank of America being selective with the homeowners they help? Fannie Mae and Freddie Mac control a great portion of outstanding mortgage debt, and they refuse to allow write-downs on any of their controlled mortgages. According to Edward DeMarco, former Federal Housing Finance Agency, acting director and one of the Fannie/Freddie leaders, “Reducing loan principal would encourage other borrowers to intentionally default, so they, too, could take advantage of a reduction.” As unfair as this philosophy is, this decision stands and Bank of America cannot get around it.
What does Bank of America have to say about this? While their hands are tied as far as reducing the majority of principals, they have agreed to offer other forms of assistance, including restructuring mortgages and aid for buyers.
It is likely that the new settlement will target homeowners who didn’t qualify under the national mortgage settlement. For those customers who may qualify, Bank of America will begin to contact them toward the end of the year. As a homeowner there is no need to give up hope, talking to a foreclosure defense attorney could provide solutions.