“Real Scoop” on Bank of America principal reduction press

The BOLD is highlighted below for a reason. This is the actual news report from B. of A. executives. Read carefully while I break it down.

A select group of struggling mortgage borrowers are about to get an offer that sounds too good to be true. Executives at Bank of America say they will begin mailing 200,000 letters offering certain customers mortgage principal reductions.

“If people get these things and toss them, they won’t be eligible,” says Ron Sturzenegger, the Bank of America executive charged with providing solutions to borrowers in need of mortgage assistance. (this statement clearly indicates if you don’t respond, they check you off the list for help)

Apparently only eligible borrowers could get as much as $150,000 knocked off the balance of their mortgages.  It is all part of the $25 billion settlement reached this year between federal and state agencies and the nation’s five largest mortgage servicers over fraudulent foreclosure document processing (so-called “robo-signing).

Bank of America in a deal with state attorneys general and the U.S. Department of Justice, committed $11 billion to mortgage principal reductions, but executives say they will go beyond that if enough borrowers respond to their offer.  Five thousand borrowers have already received a collective $700 million in principal reduction through a pilot program for those already in a modification negotiation.  The 200,000 borrowers being targeted now may have already exhausted modification options or may have yet to contact the lender.

Executives say borrowers receiving the letters are eligible, but they still have to prove they qualify.  In order to be eligible, a borrower must be 60 days late on the mortgage payment as of January 31, 2012.  1. This is ridiculous. This alone could cut out 30% or more of the people who get the mailing. 2. To be exactly 60 days late as of January 31, 2012 may only be 4,000 people. 3. The fact is that B of A knows if the people getting the letter even qualify when they mail it, so why all the semantics?

The borrower has to owe more on the mortgage than the home is currently worth, commonly known as “underwater,” and the borrower’s loan must either be owned by Bank of America or serviced by Bank of America for an investor who is allowing the modifications.

In order to qualify for the modification, the borrower must answer the letter with full documentation of income, showing that under the terms of the modification they can still make the monthly payment.  A borrower with no income would therefore not qualify.   A borrower’s current monthly payment must be  more than 25 percent of gross income, and the borrower must show they are unable to afford that. 1. This suggests that anyone with income reduction or even temporary job loss, doesn’t qualify.

“If you can afford to make your monthly payment and are choosing not to, you will not get this principal modification,” says Sturzenegger.

If the borrower qualifies, (B of A knows full well most won’t qualify and this is just another press release to give people false hope, and appear as if they are helping more people than they really are) Bank of America will bring the monthly mortgage payment down to 25 percent of the borrower’s gross income.  That could mean principal forgiveness well over $100,000, as there is no limit to the amount of the mortgage.  If enough borrowers respond, it could cost Bank of America far more than it committed to in the settlement.

“Yes, we have the capability to go well beyond the $11 billion,” adds Sturzenegger.

(read between the lines, they have the capacity to go well beyond, but they won’t have to because they already know how many people “actually” qualify.)

Bank executives say that before choosing which borrowers will get the offer, they performed a net present value test on each loan, making sure that the principal reduction modification would net Bank of America or the investor who owns the loan more than foreclosing on the home.  “It has to be fair to the investor as well,” says Sturzenegger. (ah they already ran a NPV test. So again, why all the semantics about only those who qualify will get it? They know who will and who won’t. They just don’t want you to know that.)

Not all of the 200,000 borrowers who receive the letters are expected to respond.  Executives say there is a level of fatigue among delinquent borrowers who have already received several notices or who may have gone through a failed modification process already.  (Right, B of A executives already know many of these addresses won’t respond, and my inclination is that they know many of these people they are mailing have already moved out or abandoned the home) Some borrowers simply don’t want to stay in their homes, while others may think the offer is a scam. “They have been contacted by a lot of other people, and this offer may appear too good to be true,” says Sturzenegger.

That’s why Bank of America is sending the letters by certified mail and trying to make the language as simple as possible.  A sample letter obtained by CNBC shows a bright red box in the top corner labeled, “IMPORTANT” and simple language stating, “Qualifying customers may reduce their monthly payment by an average of 35 percent.”

6500 letters should be arriving in mailboxes across the country this week, with a wave of new letters going out every week until the end of the summer, when all 200,000 should have been mailed.  Bank of America is staggering the mailings in order to handle the expected response. That bank has staffed up to handle the task, with 50,000 employees manning servicing desks, but the process will clearly take a lot of time.  That’s why Bank of America has suspended any foreclosure actions against these 200,000 borrowers until the process is complete.

There are currently 5.59 million U.S. loans that are either delinquent or in the foreclosure process, according to Lender Processing Services.  Bank of America services one million of those loans, but many of them are owned by Fannie Mae and Freddie Mac.

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360 Group has had great success holding banks accountable. Our most recent modification had a principal reduction built in and lowered the payment by 40%. It took us over 9 months because the bank kept asking for documentation over and over while in underwriting for 3 months. They hope that something new will show up so they can decline the file. Once declined your out of luck for 12 months, but we don’t give up. Contact us if you have any questions about REALLY QUALIFYING with no semantics and we’ll give you the straight scoop 623-748-7448.

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