Principal Forgiveness: The New BofA Mortgage Deal

Julie Rains — Wed, 28 Apr 2010 13:00:04 +0000

Starting next month (May 2010) or as soon as its operationally ready, Bank of America may reduce principal balances on certain mortgages of deeply underwater loans. This move expands the scope of its National Homeownership Retention Program (NHRP), which was established to make amends for predatory lending practices by Countrywide Financial, which Bank of America acquired in 2008.

The overview of the original program on Bank of America’s website is skimpy on details. A more detailed description of the new-and-improved NHRP indicates that eligible borrowers consist of those who:

Purchased a primary residence by taking out a subprime mortgage, Pay Option ARM (Adjustable Rate Mortgage), or Prime 2-year Hybrid ARM loan from Countrywide on or before January 1, 2009;
Are now 60 days or more delinquent on the mortgage loan;
Have a principal balance that is 120% or more of the market value of the home (LTV).

Loans are to be modified through 1) principal forgiveness and 2) interest rate reductions. The hoped-for result is a monthly mortgage payment that is affordable according HAMP guidelines AND a fully amortizing loan so that borrowers can avoid the scenario of making payments for decades but never shrinking loan balances.

In some cases, the principal reduction isn’t really about lowering the original loan balance to reflect market value but rather undoing the harm caused by interest capitalization associated with negatively amortizing loans. (In plainer language, if you owe more now than you borrowed a few years ago — because interest was added to your loan balance — then help might be on its way.)

But forgiveness isn't quick, simple, and all-encompassing. The following conditions may apply:

Principal reductions will be based on borrower performance over a period of 5 years
Loan term will be extended to 40 years (rather than a standard 30 years)
Arrearage (past obligations not paid) will be capitalized (added to the outstanding loan balance)
Principal amounts not forgiven (because there are limits to forgiveness, up to 100% LTV) will be “non-interest bearing and a balloon payment of the forbearance amount will be due on the maturity date, upon sale of the property, or upon payoff of the interest bearing balance.” (according to the Final Judgment by Consent PDF indicating the settlement of a complaint filed by the Attorney General's Office of Massachusetts).

The program (both the original and enhanced NHRP) is part of a settlement of lawsuits filed by Attorney Generals of multiple states, such as:

Alaska settlement (PDF)
California news release
Louisiana basic info
Massachusetts press release on settlement
Rhode Island press release
Washington website on Countrywide loans

Check the website of your state's Attorney General's office for details on loan programs that may relate to your situation. To see if you are eligible for National Homeownership Retention Program, check Bank of America's website.

Note that “Countrywide has initiated proactive outreach to eligible borrowers," which seems to mean "we’ll call you, don’t call us.” However, the legal agreements require assistance to a certain number of borrowers so Bank of America needs to find people to help. Borrowers can take action rather than waiting for a phone call.

This article is from Julie Rains of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Countrywide tried to steal my parents' money - How you can avoid being a victim of mortgage servicing fraud

Xin Lu — Sat, 21 Feb 2009 07:19:26 +0000

A few weeks ago I wrote an article about checking your mortgage statement, and interestingly enough my family was recently confronted with an erroneous mortgage statement. This is the story of how Countrywide tried to steal my parents' money. Additionally, I will give you some related information on the unscrupulous practice known as mortgage servicing fraud.

My parents are very fiscally responsible people, and they have been prepaying their mortgage by a significant amount every month. What happened was that Countrywide did not correctly apply their prepayments to the amount of principal they owed Fortunately, my mom keeps her own payment schedule in a spreadsheet so she spotted the error. The difference in her schedule and Countrywide's was more than $700.

My mom called Countrywide promptly and pointed out the error, and the representative replied that the mistake was made because my parents paid extra principal payments online. The representative also stated that if they wanted to make additional principal payments they needed to send in a check by mail. This was an obvious lie because on Countrywide's web portal they have a box specifically marked for extra principal payments. So my mom asked the representative why the extra payment option is there on the web interface if people had to send in physical checks. This would mean that every single person making extra principal payments online would not be credited correctly. The representative had no good answer and agreed to fix my parents' amortization schedule.

According to my mom Countrywide's electronic only statement looked like they credited the principal and interest separately and correctly, but the principal amount was completely wrong. She was only able to discover this because she kept her own schedule of payments. I researched this situation online and apparently it happens more than you think. There is an entire website called Mortgage Servicing Fraud devoted to describing and exposing these tricks the mortgage servicers play on honest paying customers. It was founded by a man named Jack Wright who lost his home to an evil servicer named EMC that recently got slapped by the FTC.

On his site, you can see the various ways the mortgage servicers scam consumers. Here is a quick summary of the common ways they do this.

They manipulate payment schedules like they did in the case of my parents. Basically, they do not credit your principal payments correctly and the amortization schedule gets more and more skewed with each payment.
If you impound your property taxes and insurance, they pay your taxes and insurance late and then add a late penalty.
They force place an insurance policy on your property that the property does not need and raise the amount you need to pay.
They withhold your payments and say that your payment is late, and then charge a late fee.

According to Mortgage Servicing Fraud, the most unscrupulous servicers mainly target consumers who they deem to be immigrants or lowly educated so that there is less of a chance of a complaint. I have no evidence that Countrywide targeted my parents in this particular incident, but my parents do have foreign sounding names so it does seem a little fishy.

There are ways consumers can guard against these tactics. First and foremost is to keep a record of all the payments you made and also your own mortgage schedule. Then if you suspect anything is wrong you can contact your servicer and ask for an entire schedule of their records. According to the Real Estate Settlement Procedures Act you can write a "qualified written request" to your mortgage servicer on any disagreements. The servicer is obligated to respond to you, and if you have proof of your own schedule then most of the time they should correct their mistake. If they do not correct their mistake you can file a complaint with the FTC and your state attorney general's office. If enough people complain, these government offices will investigate.

If you do impound taxes and insurance, you should make sure that the taxes are paid on time and that the amount you are putting into escrow is correct. There are some consumers who were lied to by their servicers when their servicers told them that taxes have risen significantly. You can check the tax amount for your parcel at your county tax collector's web pages, or you can just call them to find out. The best way to avoid these problems is to forgo the impounding of taxes and insurance, but sometimes doing an impound reduces the mortgage rate.

The bottom line is that consumers have to be vigilant of the mistakes mortgage servicers make. Some of these mortgage servicers are creating these problems on purpose to pad their profits, and some of them might just be plain incompetent. It is sad that you cannot trust these companies, but as long as you can proof your side of the story it is possible for you to prevail.

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

countrywide

Principal Forgiveness: The New BofA Mortgage Deal

Countrywide tried to steal my parents' money - How you can avoid being a victim of mortgage servicing fraud