Many people are probably delighted after B of A's news release this past week. Who wouldn't be excited to have the amount they owe reduced to market value? According to recent statistics nearly 1 in 4 homeowners owe more than what their property is worth. Here are the five states that have been hit the hardest:
•1. Nevada, 70% of all mortgaged properties were underwater
•2. Arizona, 51%
•3. Florida, 48%
•4. Michigan, 38%
•5. California, 35%
So, what are homeowners to do? We all know the Government's attempt to resolve this problem has come up short, not to mention the huge percentage of re-defaults on loan modifications.
In rides B of A to save the day, at least for Countrywide originated mortgages. Bank of America rolled out National Homeownership Retention Program (NHRP). Yes, another four letter acronym! I hope this four letter acronym has more success than the ones in the past, but I'm not going to hold my breath.
The reason I'm not convinced this is going to help as much as people think it would is due to a few reasons. Let's first determine who is eligible for the NHRP:
•1. Only Countrywide originated loans before Jan 1, 2009. But not all of their loans...read on.
•2. Only their Subprime, Pay Option ARMs (Option ARMs) and prime-quality two-year hybrid ARMs.
•3. The loan must be delinquent by 60 or more days.
•4. The amount of principal owed must exceed the property value by 20%
Let me make sure I understand this, the fastest growing segment of defaults are Prime "A" paper loans (watch Ryan Smith with Realty World & Associates talk about this on video at http://theshortsaleminute.com) and they are not eligible for NHRP? Huh? Can anyone tell my why? Hello executives at B of A, where did you come up with these qualifications?
Next, let's look at how they will accomplish the principal reduction. During the five year NHRP period, Bank of America will set up an interest free forbearance account for the amount of principal owed above the current market value of the home. How will B of A determine the fair market value? Maybe an over-inflated appraisal which Countrywide was so accustomed to using to originate these loans? Sorry....back to the example. If the homeowner owes $550,000 on a home that is worth $350,000 and qualifies for NHRP, B of A will establish a separate non-interest bearing account of $200,000 (the difference from what is owed and fair market value) while the homeowner makes payments on the $350,000 at the current market interest rate. The homeowner will not be responsible for payments on the non-interest account.
During the first three years of NHRP, B of A will reduce the separate account ($200,000 from the example above) by 20% each year IF THE HOMEOWNER REMAINS CURRENT. Did you read that? IF THE HOMEOWNER REMAINS CURRENT. This translates to $120,000 will be forgiven after three years from the example above. If after this three year period the homeowner is not underwater (owes the same amount on their mortgage than their house is worth), B of A will no longer reduce the principal. If the homeowner is still underwater, B of A will continue to reduce the principal for an additional two years.
I am concerned with the following: the homeowner must remain current for either the three year or five year NHRP period. What happens if they are late? Does this offer become null and void? I think many of the people that got caught up in this mess never intended to default on their mortgage(s). I don't think they went into this to scam the lenders....yes, some bad seeds did, but the majority didn't realize they would be out of work within a few years after buying their home. My concern with NHRP is for the same reason I don't like the HAMP or any other modification programs....I think it's delaying the inevitable. To qualify for this program you must be at least 60 days late; which means you're not paying your lender. In rides B of A dangling the hopes of principal reduction. A year into this program and you're suddenly laid off, you're company is downsizing! Guess what, you're booted from NHRP and in the same, if not worse situation as you were before. I've seen this happen time and time again with HAMP.
The bank you pay your mortgage to doesn't care about you, they come up with programs that help a few of the many people struggling. They play on your emotions and know you will scrape together every last penny in hopes of saving your home. They take a non performing loan (delinquent by 30+ days) and squeeze out as many payments from you before you're faced with losing your home to foreclosure. People thought the 6+ month trial period for a loan modification was long, the NHRP is a three to five year trial period!
As stated on my website (http://www.theshortsaleminute.com) If you owe the bank $100 that's your problem. If you owe your bank $100 million, that's the banks problem.
Comments (9)Subscribe to CommentsComment