Wednesday, March 24, 2010
Nothing like a lawsuit to clear the managerial mind
After several years of digging in their heels about principal reduction for underwater mortgagee, Bank of America has followed the announcement of a $3 Billion settlement of a Massachusetts lawsuit over Countrywide Mortgage fraud by announcing a program to forgive or defer the underwater portion of Countrywide mortgages.
In other news, the public still awaits ex Countrywide CEO Angelo Mozillo's perp walk.
Most of the borrowers have pay-option, adjustable-rate mortgages, or option ARMs, a type of loan that allowed them to pay so little that their mortgage balances went up instead of down. To help reduce their first-mortgage payments, the bank is offering to stop charging interest on part of the principal the borrowers owe, a practice known as forbearance.The Bank will now have to take write downs for the losses but will maintain some control over when it does so.
The other features of the government plan -- reducing the interest rate to as low as 2% and extending the time for payback to as much as 40 years -- would then be applied to try to get the payment down to 31% of household income, the target of the Obama administration's anti-foreclosure plan.
Borrowers who agreed to the restructured terms and who made the lower payments as scheduled would be able to gradually convert the principal placed into forbearance into forgiven principal over a five-year period.
In other news, the public still awaits ex Countrywide CEO Angelo Mozillo's perp walk.
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