Bank Of America To Help Struggling Homeowners
Bank of America, the nation's largest home lender, announced a new program today to help financially struggling borrowers. The bank said it will forgive up to 30 percent of what some mortgage borrowers owe. Housing experts say it offers real hope.
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From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.
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As NPR's Chris Arnold reports, Bank of America will forgive up to 30 percent of what some borrowers owe.
CHRIS ARNOLD: A lot of people who follow the housing market think that this could be a very big deal. Politicians, nonprofits and banks all say that they've been trying to prevent foreclosures. But one problem is that many homeowners who are underwater are deciding that it makes more sense to just give up and hope to buy some other house someday.
JACK SCHAKETT: The customers that are most underwater, those customers appear to be making a decision that they're willing to walk away.
ARNOLD: For the first time, you're launching a large scale program where you're going to forgive some of what people owe in order to keep them in their homes?
SCHAKETT: Yes, that's correct. Let's say I have a customer and their house is worth $200,000 - that's our typical customer - and they have a $250,000 loan balance.
ARNOLD: In other words, they're underwater by $50,000. Through existing programs, some homeowners can qualify for lower interest rates and lower payments, but that would still leave them in a big hole without much incentive to stick around. So, B of A is going further.
SCHAKETT: We discover we can actually take $50,000 of that $250,000 and we can set it aside, and we provide the customer mortgage on the $200,000 remaining balance.
ARNOLD: So basically, you kind of break a chunk of the money that's owed off into a second loan that's going to be forgiven if they keep making their payments.
SCHAKETT: That's exactly right. The $50,000 is set aside. We then forgive that in increments of $10,000 per year over the five-year period, as long as the customer stays in good standing with us.
ARNOLD: The customer never has to pay that money back. Meanwhile, they're paying down their mortgage, and hopefully home prices start rising a bit. So the homeowner ends up better off than if they'd walked away, and the bank loses less money. It actually makes a lot of sense, says Mark Zandi, the chief economist with Moody's Analytics.
MARK ZANDI: I think it's fantastic. I mean, this is the first real significant effort to help reduce principal amounts, and I think that's what's needed to really make a dent in this foreclosure crisis.
ARNOLD: Zandi says the reason all of us should care about that is...
ZANDI: The economy can't really get going until the housing market finds a bottom, until house prices stop declining. And that won't occur until this foreclosure crisis abates.
ARNOLD: Bruce Marks runs the Neighborhood Assistance Corporation of America, or NACA. His group has been protesting the big banks and saying their foreclosure prevention plans are totally inadequate, but this plan he actually likes.
BRUCE MARKS: This is a huge step forward. What Bank of America is doing is precedent-setting.
ARNOLD: Professor BILL WHEATON (Economics, MIT) These are mortgages that never should've been made. And if you expanded it to people that had reasonable mortgages to begin with, you would in substance have a more little legitimacy, right? Why are we helping people who are duped or who were just fiddling around with crazy mortgages to begin with?
ARNOLD: Chris Arnold, NPR News.
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