(editor’s note – I inputted this before noon and forgot to press send!)
Bank of America’s announcement (link here):
Bank of America will on Wednesday announce plans to start forgiving mortgage loan principal for troubled homeowners who owe more than 120 percent of their home’s value or are battling ever-expanding “negative amortization” loans.
They’re going to knock off the neg-am portions that they have no hope of ever getting anyway? Not much of a concession or benefit there for anyone.
Many things struck me about the announcement:
1) They will forgive up to 30%. So if you are 150% underwater, you are still hosed.
2) You need to be at least 120% underwater. 119%, no go. How many appraisals are going to be at 118-119%
3) In the end, after 5 years and forgiving up to 30%, you could still be at 100% loan, meaning you still can’t sell. I’d like to see the details, but could it be 100% at the time 5 years from now, meaning you get 0 appreciation?
4) You can’t reiterate enough the impact of second lien holders. Is B of A going to waive up to 30% of principal if Citibank is waiting in the wings to grab whatever excess equity. And is Citibank just giving up? Citibank can still foreclose as the 2nd, subject to the first.
All makes good headline news, but I still can’t see this things worth the time of day.
On top of that, in an interview on CNBC this afternoon, Bank of America’s chief of foreclosure mitigation said:
“We have been talking to Treasury, other large services have been talking to Treasury about programs similar to this for quite some time. I think the Treasury is close to deciding whether or not they want to go forward with a program like this…definitely they have it on their radar screeen. They know they need to do things to approve acceptance rate also, and this is a way that most people believe might do the most to improve the acceptance rate.”
As you probably know, the Treasury program does not require principal write down although it does encourage it. Most of your mortgage analyst types claim that the failure of HAMP is largely due to overwhelming negative home equity nationwide.
This new Bank of America program is so targeted that it will only apply to about 45,000 customers. It’s only for, “certain subprime and Pay-Option adjustable rate mortgages (ARMs).”
I saw a clip from ABC News with the CEO of Bank of America. BoA has a million customers that are 60 days late in their mortgage payments. If it only applies to 45,000 customers, that’s only 4%. And Jim’s right–only subprime and “Pick a Pay” (neg am) loans will be part of this new program. All 30-year fixed loans are “ineligible”.
IMHO, this will eventually apply to ALL conforming loans. I personally believe this is just a trial to see how it works. This is why they’ve been trying to refi everyone into GSE loans — they govt will take the (BIG) hit, not the banks.