Hat tip to shadash, who is fuming:
Bank of America wants to give struggling mortgage customers who are collecting unemployment benefits up to nine months with no mortgage payment.
That’s right. Zero payment.
Customers would have to agree that, if they haven’t found a job within the nine months, they will sign over their house to the bank. The Charlotte bank would give them at least $2,000 to help with moving expenses.
The proposal needs regulatory approval, and the bank doesn’t know when, or if, that will happen.
Some experts say the plan could become an industry model and is the most substantial, creative approach yet to addressing the fallout from stubbornly high unemployment, which is driving mortgage delinquencies and foreclosures.
The plan also could provide families with faster relief, allow them to save money and provide a timetable for making decisions. The bank could avoid millions in collection and foreclosure expenses.
“It’s an innovative way for Bank of America to demonstrate it’s working with its customers,” said Mark Williams, a former Federal Reserve bank examiner. “Regulators should view this as a positive step as well.”
The $75 billion federal mortgage-aid program, announced in February 2009, has struggled to fulfill President Barack Obama’s estimate of helping millions. Through March, only 230,000 families had received final mortgage modifications under the Home Affordable Modification Program, called HAMP.
The program holds few options for the jobless, even as the U.S. unemployment rate hovers around 10 percent. The Charlotte area’s rate is near 13 percent. And more than 6.3 million people nationwide have been out of work longer than six months.
“It’s something I would have done,” said Bill Sagy, a Bank of America mortgage customer laid off last June from his management consultant position. “That would definitely have worked.”
Instead, he spent months working with the bank for reduced payments that he thought would become a long-term modification. But that didn’t happen, making him one of a growing group of homeowners who spent scarce resources that didn’t ultimately save their homes.
Sagy’s Huntersville home, which he bought for $253,000 in 2006, has shed value and is unlikely to sell for what he owes. Without a modification, he’s behind on payments and says the bank wants to foreclose.
“It’s so frustrating,” said Sagy, who with his wife is considering relocating.
Mark Pearce, a leader in national foreclosure prevention efforts, called the plan a step forward.
“This seems like a new idea that offers a lot of positives for both the homeowners and the bank,” said Pearce, an N.C. deputy banking commissioner. “There’s a nice balance, giving people more breathing space but with a date certain for moving to the next step if things don’t work out.”
In addition to reducing worries, the program could, for example, mean families are able to keep current with a car payment and avoid repossession. Losing a car makes it harder to find or keep a job. Borrowers also might be better able to afford expenses such as child care, freeing them to attend job fairs and interviews.
Steve Obendorf, who works in the credit-counseling unit of Family Services, a Gastonia nonprofit, likes the idea of giving people “a breather.” But the bank also needs to make sure people understand they’re agreeing to sign over their homes if they can’t get a job. Otherwise, he speculates, there could be a wave of homeowners begging for a reprieve.
Obendorf, who works with people facing foreclosure, said unemployment is the key reason people come in for the counseling services, which are free. He recommends people save as much money as they can during any grace period, so they have a cushion.
Guy Cecala, publisher of Inside Mortgage Finance, said the bank “deserves high marks” for the effort but questions how many people the program could actually help. The self-employed, for example, don’t qualify for unemployment benefits. Homeowners with a lot of equity aren’t likely to sign up because they would not want to risk losing their home in nine months.
The bank has 1.44 million customers who are 60 days or more past due, nearly 14 percent of the 10.4 million mortgages it services. But it hasn’t broken out how many of those might be helped by the proposed plan. Many details, such as eligibility and the application process, also haven’t been finalized because the bank can’t go ahead without regulators’ approval.
Also unclear is whether zero would really mean no payment at all.
That’s the goal for Jack Schakett, who is leading negotiations for the bank. That would mean the bank pays bills such as property taxes and insurance during the nine-month break. That’s what happens now when a customer is delinquent.
Who’s going to pay the rent for non-homeowners?
Oh, that’s right. They don’t count.
Non-homeowners are collecting unemployment, foodstamps, disability, etc. Trust me…there are plenty of freebies for everybody. Nobody goes hungry in the USA if they know how to work the system.
I guess 9 months rent + $2k is less than the cost to foreclose and evict.
Re #3 in particular if the place is trashed upon moveout. Having to strip a house to the studs and re-do is expensive you have to replumb, likley re-do the electricaly as well as all the interior finishing. If you can avoid that the house is worth more. So I would hope there would be some sort of anti trashout clause on the 2k.
“I guess 9 months rent + $2k is less than the cost to foreclose and evict.”
Average listing price in SD = 636k
636k @ 5.3% 30yr fixed = $3492 per month the bank misses out on letting the “homeowner” live for free.
$3492 x 9 months = $31428
So are are telling me it costs $31,428 on average to foreclose on a home?
Dunno
Maybe the better calc is 2k for a signed document promising to leave in 9 months. If someone has lost their job, do you think you’re getting the 9 months rent?
In California if you are renting and lost your job your landlord could have you evicted from 2 weeks to 30 days after non payment.
I don’t see this ever getting off the ground, at least in California. This is more PR poppycock IMO.
If the idea is that the borrower gives the bank an unrecorded deed in lieu of foreclosure before the 9 months starts as part of a forbearance, there are some complicated legal problems that come into play. In addition to potential interveneing liens that may arise, destruction of a borrower’s statutory right to reinstatement five days before a non-judicial sale, or right of redemption, or right to overbid proceeds under these circumstances may be unlawful. The net effect is that the bank, after accepting the deed in leiu, may be stuck having to do a judicial instead of a non-judicial foreclosure since they waived the right of non-judicial power of sale under the deed of trust by accepting the unrecorded deed in lieu.
And if they are going to ask for the deed after the nine months are up, good luck getting the borrower to cough it up.
And would B of A servicing be able to process these without screwing them up? Not based on what I have seen.
“In California if you are renting and lost your job your landlord could have you evicted from 2 weeks to 30 days after non payment.”
Good luck with that.
it’s not a bad idea, but what about 1099 compensated people? if BofA did this, it would be good to identify people with 1099 income losses
as well.
Dumb country we live in
shadash-But what are the bank’s actual costs? They can borrow money at close to 0% from the Fed. Plus, what if house prices actually rise in nine months? It takes about nine months to process a standard foreclosure these days anyways.
Kingside-The press releases on this state they are asking for regulator approval before doing it. I’m sure the reason they are is to change the rules to allow this to be 100% risk-free to the bank-nine months and you are out, no appeal.
The banks should have had PLENTY saved-up for this storm. One tends to forget that for eight(1998-2006)or so years, there was probably not a single foreclosure (at least in SD), yet, in using their normal protocal, they factored into the interest rates a “Default Premium.”
And what happens to the missed payments if you get a job in month #8? Deferred? Recapitalized?
What if I take your no payments offer for 8 months, by lying about whetehr I have a job (esp. if I’m self employed), then I resume making payments, tear up my deed in lieu, and default again, knowing that it will take BofA at least 18 months to file an NOD, NTS and proceed with a trustee sale. Shoot, I could live for free in my house until 2014.
And how could this deed in lieu stuff possibly work for all the fuckups with 2nd and 3rd liens on the property?
I have a better idea. It’s called: (1) enjoy your extended unemployment benefits for the next 9-22 months and good luck getting a new job; (2)put your house on market if you have equity or don’t pay the mortgage if you’re underwater; (3) allow the senior lender to foreclose and then file BK to wipe out any unsecure debt; and (4) start over.
More of kick the can down the lane – extend and pretend. I’m sick of it. It’s pure unadulterated bullshit. But that’s the kind of country we live in today. It will get worse.
Sorry, but if banks want to do this, it’s their choice. I don’t see it’s that much different than my credit cards that offer to let me suspend payments in the event of this or that emergency for X amount of time. Plenty of people have lost their jobs during this recession who otherwise would have been perfectly able and willing to continue making house payments – people who have savings cushions that have been eaten up by how extended unemployment has been. I’d rather see the bank give those people a break than strategic defaulters or people who couldn’t have ever hoped to make their payments no matter how employed they were.