Bank of America Loan Modifications

by tammy on July 23, 2010

The subprime mortgage crisis and the resulting credit crunch and recession that reached its peak in 2009 resulted in many people that had bought homes during the bubble being unable to make their monthly mortgage payments. However, since most of these people wanted to stay in their homes – despite declining property values – many sought any possible alternative to foreclosure. While loan modification – a voluntary agreement between the borrower and the lender to change the terms of the original mortgage agreement – has always been available, this emerged as a major option in 2008 and has remained so to this day (July 2010), via both public and private third party negotiators.

While the initial popularity of loan modification came from the private sector – especially from a lot of out of work mortgage brokers that redefined themselves as mortgage loan modification specialists – the idea was popular enough that it was given a key role in president Obama’s “Making Home Affordable” initiative (MHA, www.makinghomeaffordable.gov) via the Home Affordable Modification Program (HAMP), which is administrated on the borrower side by the U.S. Department of Housing and Urban Development (HUD) and on the lender side by the U.S. Treasury Department. This program offers lenders a number of incentives – from direct cash payments to tax write-offs – to accept loan modification agreements for the benefit of distressed borrowers that meet the program’s qualifying conditions and circumstances (which are strictly defined).

Most of the country’s major mortgage lenders – in particular the banks that received federal bailout funds – were obligated to join the HAMP and encouraged to accept loan modifications by the federal government. This included the Bank of America, which was one of the largest mortgage holders in the country. Bank of America offers a full range of programs and options for borrowers facing financial hardship or distress (http://homeloanhelp.bankofamerica.com) including deed in lieu agreements, foreclosure, loan forbearance, refinancing, reverse mortgages, and short sales.  Further, they offer a number of programs and options via government programs such as the Federal Housing Authority Affordable Modification and the National Homeownership Retention Program, as well as all the various options offered through the MHA program.

A report issued in August 2009 showed that Bank of America was one of the worst major lenders when it came to fully accepting loan modification agreements, though this record has improved since then. Although bank of America – like the other major lenders – are under steady pressure to accept loan modification agreements, they are under no absolute obligation to do so and when they do it is only to the extent mandated by the relevant loan modification program. Bank of America remains one of the most difficult lenders to negotiate voluntary – non-government backed – loan modification agreements with. 

Loan modification agreements are almost always detrimental to the interests of the lenders since it means that either they will receive less money overall or the same amount of money over a longer period of time. This means that all lenders – including the Bank of America – are generally unhappy about loan modification in general and will usually only even consider it if foreclosure or bankruptcy seems inevitable. Nevertheless, thanks in large part to the incentives provided by the federal government, loan modifications are still possible and new agreements are being accepted on a regular basis today.

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