As has previously been reported Bank of America entered in a $25 billion settlement agreement earlier this year with 49 state attorneys, general and federal authorities.
That case centered on the big banks’ “robo signing” practices of loan in default where the bank was proceeding to foreclose. While robo-siging is a commonly used practice because of the large numbers of loans that have defaulted during the economic crisis, there are still practices, rules and laws that banks must adhere to in this process.
The settlement also found that the bank did not perform the needed administrative reviews and the methods employed to record any foreclosure documents fell short. Here, the bank relied on the Mortgage Electronic Recordation System (MERS) to ensure the paperwork was adequately recorded.
The New York Times reports that BofA has begun meeting its obligations under the settlement agreement between the bank and the aforementioned attorney’s general. In short, the bank has started notifying “thousands of homeowners” of their offer to forgive a portion of the principal balance on the mortgages.
The Times notes that the balances average about $150,000. Or as they say in the street, about 150 large. But there are a few caveats attached to the offer.
In sum, Bank of America will be notifying more than 200,000 homeowners who might be eligible under the program. This requires aggrieved home owners to currently have or have had a loan originated, owned or serviced by Bank of America.
Moreover, borrowers must owe more than the property is worth (a.k.a “under water”), and borrowers must be at least 60 days behind on payments as of the end of January 2012. The bank had already started notifying a smaller class of borrowers of the settlement but these homeowners were already seeking loan modifications.
This offer was sent to about 5,000 borrowers and the aggregate principal balance of these loans was in the neighborhood of $700 million. However, these borrowers are required to make at least three timely payments to stay in the program; and given the fact that the economy has yet to recover; these modifications might be a temporary stop gap measure.
A bank spokesperson reportedly told the Times that “to the extent principal reduction and other modification tools help us turn mortgages headed for possible foreclosure into long-term performing loans, it will be positive for homeowners, mortgage investors and communities.”
Kyle Colona is a New York-based freelance writer and a Feature Writer for CompliancEx and the Wall Street Job Report. He has an extensive background in legal and regulatory affairs in the financial services sector and his work has appeared in a variety of print and on-line publications as well as his blog, “Colonaville.”
You can find him on linkedin.