Big bailouts on the way for some underwater homeowners
New bailout offers are on the way to some homeowners who owe their lenders more than their homes are worth.
Bank of America this week began mailing letters to the first of 200,000 underwater homeowners offering mortgage principal reductions by up to $100,000 each.
And California’s state-run foreclosure avoidance program announced it will chip in up to $100,000 to help borrowers whose lenders agree to modify their loans.
Meanwhile, consumer protection advocates warn that scammers pretending to offer loan workouts are trying to trick homeowners into paying them for fake foreclosure help.
Neither the Bank of America program nor the California program charges fees, so being asked to pay for help is a warning sign that an offer is a scam.
Bank of America deal
Bank of America is offering principal reductions as part of the $26 billion mortgage settlement that it and four other big banks signed onto with 49 state attorneys general.
The banks agreed to spend $17 billion to help financially troubled homeowners who owe more than what their homes are worth.
For Bank of America customers, you may be eligible for principal forgiveness if:
- The loss caused by reducing your outstanding mortgage balance will be smaller than the loss caused by foreclosing on and selling your home.
- Your loan is owned or serviced by Bank of America but not guaranteed by Fannie Mae, Freddie Mac, FHA or VA.
- You were at least 60 days late on your payments as of Jan. 1, 2012.
- Your current payment takes more than 25% of your total (gross) income.
- You can prove you have the income to make your mortgage payment if Bank of America reduces your payment to 25% or less of your total income.
Bank of America will mail principal reduction offer letters to homeowners between now and September.
Customers should call 877-488-7814 for more information.
The other banks in the settlement have said they’ll reduce mortgages to different levels. Ally said it will go as low as 85% of a home’s value. So if your home is worth $100,000, your modified mortgage would be reduced to $85,000.
JPMorgan Chase, Wells Fargo and Citibank agreed to write down loans to 120%, meaning the homeowner with the $100,000 home would have a $120,000 mortgage.
It is wise to ask lots of questions about these offers, considering the banks have dangled trial loan modifications in the past, only to later determine homeowners don't qualify for a permanent modification.
California to reduce mortgage balances
In California, the state will fund 100% of a principal reduction up to $100,000 for financially troubled homeowners via the Keep Your Home California program.
Armed with $2 billion in federal Hardest Hit funding, the state will pay down mortgages when banks agree to lower interest rates or make other loan changes to help troubled borrowers stay in their homes.
Previously, the lender had to agree to chip in $1 for every $1 the state spent to reduce an underwater mortgage, and the state would offer no more than $50,000 per homeowner.
But Fannie Mae and Freddie Mac, which guarantee more than 60% of California home loans, refused to allow the principal reductions, the Los Angeles Times reported.
While more than 60 mortgage servicers are participating in at least one of the Keep Your Home California programs, only 14 were willing to do principal reductions. Those servicers cover about 95% of the mortgages in the state.
California, like most states, hasn’t had much success in spending Hardest Hit funds. Nationally, states had spent only 3% of the funds allocated for the program, which runs though 2017.
Homeowners seeking information about the program should visit www.KeepYourHomeCalifornia.org or call 888-954-5337.