Thanks to California Attorney General Jerry Brown, an agreement has been reached with Countrywide's parent Bank of America to rescue an estimated 125,000 Californians from foreclosure. The terms are narrow, targeting owner occupants who took out from Countrywide Option ARM or subprime mortgages from 2004 through 2007, with a few provisions tossed in to assist homeowners with prime and Alt-A loans.
Starting December 1, apart from freezing foreclosures, Bank of America has agreed to waive prepayment penalties and late fees, plus offer to some ARM holders interest rates as low a 3.5% on a new refinance at 95% of loan-to-value, based on today's market value.
All of this sounds fine and dandy, but it makes me wonder how many borrowers will take advantage of these rescue programs? It seems like in today's fast-fix-society that many home owners would prefer to do a short sale and get rid of the property, freeing themselves from the entire homeownership process.
Many of the homeowners who took out these Option ARM and subprime loans, especially those who opted for the 2/28 programs, were not in a position to own a home in the first place. Given the choice between staying put and continuing to make mortgage payments under a reduced interest rate plan (on a lower loan balance) or selling the home on a short sale, I'm guessing that many would choose the latter. The reason I suspect this might be true is because every time I lay out the available options to homeowners, encouraging them to pursue a different avenue than trying to do a short sale, they choose the short sale route every time.
Which do you think homeowners will choose? And those for those who choose a short sale, do you think Bank of America will work any harder now to get short sales approved?
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