By Moe Bedard
Over the last month there have been incredible developments in federally subsidized and incentivized loan modifications, refinance programs and the mortgage cramdown bill. Today, Bank of America announced that it will begin refinancing mortgages up to 105% of a home’s value, part of the Home Affordable program. Moreover, Bank of America also indicated it would begin rolling out a trial version of the federally subsidized loan modification program loosely modeled off the FDIC loan modification program.
According to Bank of America, it will offer short term trial loan modifications that are essentially repayment plans for three to six months to its consumers. These trial loan modifications may be converted to permanent loan modifications in the future.
These are important developments as Bank of America and other industry giants like Wells Fargo set the pace for the entire banking industry. My take on the recent announcement is that loan modifications may become relatively standardized across the banking industry soon if Bank of America’s attempts bear fruit. The recent OCC and OTS Mortgage Metrics Report identified some key areas of concern for the ongoing success of loan modifications in general showing that the vast majority of consumers that receive loan modifications do not have their payments decreased by more than 10% while some consumers are actually receiving loan modifications wherein their payments increase. It should have come as no surprise to market experts and banking giants that re-default rates on loan modifications are particularly high when payments do not substantially decrease.
While Bank of America’s announcement may seem like good news I am not particularly convinced it is. First of all, the trial period for loan modifications seems more than anything like a litmus test for the viability of loan modification standardization based on government guidelines. What I mean by this is that if these trial periods go well and if the permanent loan modifications go well after the trial period and re-default rates are lower than what major banks including Bank of America are currently seeing the program will most likely go forward across the industry.
As always, my greatest concern is this: Will this be good for the consumer?
Is it better for consumers not to have to fit in to specific guidelines that are standardized across an industry for loan modifications or will it be better for consumers to know exactly what they can get from a bank as far as loan modifications are concerned?
If Bank of America sets an industry standard and if all loan modifications across the country are based on standardized loan modification guidelines I see two potential outcomes. First, with standardized guidelines a great deal of fraud could be avoided. When consumers are made aware of the guidelines for qualification then loan mod scammers would be less likely to pull the wool over a consumer’s eyes.
However, I am worried that if loan modifications are completely standardized, then Main Street might have to fit in to a very tight range of qualifications to save their homes from foreclosure.
As an advocate of consumer rights I would like Main Street to have numerous options at their disposal and while banking giants like Bank of America begin to lay the potential groundwork for standardized practice what I recognize is that the cramdown bill is slowly being left out of public conversation. The cramdown bill would give the consumer a great deal of power over their lenders. My hope, then, is that this great “announcement” made by Bank of America don’t translate in to some congressional buyoff.
For example, Bank of America agrees to standardize loan modifications and offer more refinances while congress agrees not to give consumers real power in exchange, i.e. the cramdown bill that could seriously decrease the principle balances of consumer mortgages.
Rest assured my fellow Americans I will be watching these developments like a hawk.
{ 4 comments… read them below or add one }
If they keep the BK bill on the shelf @ the Senate, we are doomed period. We have been let down once again by our leaders, So let’s see, beside the BK bill being put on the shelf, here is another great bone from our great leaders, Only TARP monies going foward would a lender have to sign-on to the MHA program (Nice Job Timmy). Brother this is what they call a standard loan Modifications, (Just make 3 more payments) and let’s take it from thier (Blood Suckers). I have tried 2 times to get some type of fairness from my note holder (ResCap-GMAC-Homecomings) and yes both times where a total re-payment joke.
It is common for ‘modifications’ to actually keep consumers drowning in a similar or higher payments to what had put them in financial straits in the first place. I’m not sure that modification standardization is the answer because every situation is different. I don’t know how the bank expects to just punch in three numbers and determine the eligibility of EVERY household. The truth is, many people can’t afford their mortgage on any terms, and others don’t need a mod but are holding out their hands regardless. I just hope the ’standardization’ doesn’t cause families to fall through the cracks simply because the numbers are off by one percent.
Who is going to house all of the homeless when we are living on the streets because these banks refuse to do the right thing.
BofA is no better than Countrywide, their rep has stated that BofA has no intention of helping anyone that doens’t have a Freddie or Fannie loan, guess what even if you did when the loan was first orginated more than likely it has been sold to the private sector so you don’t qualify anymore. So all of the sub-prime, Alt-A loan holders are screwed.
Obama whats make you any different from Bush, you just settled us with a huge debt, one that makes us responsible to pay back. What is interested is we the tax payers are required to pay back this stimlus money, money that you so willing gave to Banks, yet these same banks who we the tax payers are bailing out refused to help us because we don’t fit into their qualifying guidelines. WOW, isn’t it great to be an America. The rich get richer and the poor, well like I said before, we become homeless!
Bank of america is modifying their second loans only at this time, and you know why. Becaues they genreally don’t have much choice if a borrower files for BK. On first liens they have not yet agreed to go along with Obama because their foreclosure volume is not enough to be considered risky in their books. They can afford to raise enough capital to remain stable without more government bail outs. If enough borrowers were to stop making payments on the next 3 months, they most likely would reconsider they loan modification position. Now this BOFA only. This is not the portfolio recently aquired from Countrywide. If the unemploymetnt continues to rise you may see some loan mofification reconsideration by BOFA when they start reaizing that they will have some serious repos due to unemployment and secondoray factors like borrowers buying and moving to less expensive home and letting the most expensive home go.