If you’re one of the many Americans facing foreclosure, an announcement made by Bank of America this week could well allow you to stay in your home. It could also lead to similar announcements by other lending institutions.
The primary emphasis of the newly announced program is a repayment plan of no more than 34% (or slightly more than one third) of the borrower’s gross income as payment for their existing home loan. This decreased payment is applicable to insurance and property tax responsibilities as well.
The credit crisis has affected every American to a certain degree. Banks and other lending institutions are coming to grips with the fact that it might be less expensive to take a loss in repayment than to foreclose on property in a depressed housing market.
Bank of America acquired Countrywide this past summer. The embattled Countrywide was the target of numerous complaints regarding their lending practices. The new plan provided by Bank of America is the result of a settled lawsuit against Countrywide by eleven attorney general offices across the U.S.
Even if the aim of the new proposal is not to enhance the image of the company it will likely provide significant benefit to select homeowners who have loans with Countrywide.
According to Money.CNN.com Mark Pearce, North Carolina's Deputy Commissioner of Banks and a member of the State Foreclosure Prevention Working Group is quoted as saying, “The Countrywide settlement is a watershed moment for loan modification programs. This is, by far, the best [program ever], even better than the FDIC program with IndyMac Bank."
In the FDIC model consumers repay 38% of their gross earnings. The FDIC initiated their program this summer for mortgage holders who had loans with IndyMac Bank.
As with all such programs not everyone will be able to participate. Money.CNN.com reports that the “Program targets holders of subprime adjustable rate mortgage (ARMs), subprime fixed rate loans and option ARMs.”
It is believed that the cost for the program will be more than $8 billion. This figure is twice the amount Bank of America paid to purchase the financially ailing Countrywide earlier this year. Bank of America officials still believe this program will ultimately save them money by keeping paying consumers in their homes. Early estimates place 400,000 homes in the program.
Some of the primary beneficiaries of the plan will be residents of California. It is estimated that more than $3 billion will be used in the Golden State to help strapped borrowers. California Attorney General Jerry Brown is quoted by MercuryNews.com as saying, “This is what Congress should be doing. They bailed out the financial system, but the problem starts with the homeowner. Until we secure the ability of the homeowner to stay in his or her home and make payments, the crisis will continue.”
Consumers will not need to contact Countrywide in order to participate. The company has been culling data that is being used in an early selection process. Those pre qualified for the program will be receiving information from the lender regarding acceptance and participation.
To put the need in perspective it is believed that the housing crisis is a multi trillion-dollar problem. Proponents of the Bank of America plan are hopeful it results in similar programs offered by other lending institutions.
Meanwhile economic analysts believe the American economy will become stronger in 2009. The stability of the housing market could well lead to improved economic performance in all sectors.
