foreclosure avoidance bank of america s approaches and the home affordable modification program
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Foreclosure Avoidance Bank of America’s Approaches and the Home Affordable Modification Program. Allen H. Jones Default Policy Executive Bank of America. Overview.

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foreclosure avoidance bank of america s approaches and the home affordable modification program

Foreclosure AvoidanceBank of America’s Approaches and the Home Affordable Modification Program

Allen H. Jones

Default Policy Executive

Bank of America


At Bank of America, helping customers sustain home ownership and avoid foreclosure is not a new practice, but a well established one where we are proud to be playing a leadership role. The company’s home ownership preservation efforts encompass:

  • Foreclosure prevention strategies, including loan modification programs
  • Building relationships with nonprofit organizations and community groups
  • Partnering with housing policy professionals, national and local community leaders
  • Partnering with others in the mortgage industry
  • Working with state Attorneys General to establish our National Homeownership Retention Program (NHRP)
  • And, most recently, expanding our existing home retention solutions to include those announced by President Obama


early intervention
Early Intervention

Regardless ofthe program utilized, early contact and open communication with borrowers is the most critical step in helping to prevent foreclosure. We need to understand our borrowers’ specific needs, their current financial situation and circumstances in order to prescribe a viable solution. In 2008, Bank of America and Countrywide proactively reached out to borrowers through:

  • Personalized Resource Mailings: Personal letters and cards that offer borrowers the choice to contact their servicer or theHomeownership Preservation Foundation, a HUD approved counseling agency and nonprofit housing organization.
        • 10.3 million letters were sent in 2008
  • Outbound Calls: Numerous attempts are made to reach out to delinquent borrowers through calling campaigns.
        • 152 million call attempts were made in 2008
  • Automated Efforts: This system offers customers the ability to make promises to pay (“commitments”) via automation.
        • Approximately 11.9 million Promise to Pay Commitments were made in 2008 through our speech activated phone system and our website


results for 2008 and 2009 year to date
Results for 2008 and 2009 year-to-date

Bank of America is proud of the role we are playing in helping borrowers through these difficult economic times. We are committed to being a responsible lender and servicer, and facilitating home ownership and retention.

  • In 2008, the company completed 230,000 modifications for borrowers struggling with their mortgage payments.
  • In the first quarter of 2009, under existing programs and commitments, Bank of America completed 121,000 loan modifications for customers who were experiencing financial challenges.
  • The company has made a three-year commitment to offer loan modifications to as many as 630,000 customers, representing more than $100 billion in mortgage financing. More than 7,000 associates are focused on home retention efforts on behalf of Bank of America and Countrywide customers.


homeownership affordability and stability plan
Homeownership Affordability and Stability Plan

In keeping with our commitment to helping borrowers retain homeownership, Bank of America is fully participating in the Homeownership Affordability and Stability Plan announcedon February 18th by President Obama, extending new foreclosure prevention and refinancing options to eligible customers nationwide.

  • As a leading conforming mortgage lender, Bank of America and Countrywide will play a significant role in the Administration’s plan to provide refinancing to an additional 4 to 5 million responsible homeowners with current mortgages owned or guaranteed by Fannie Mae and Freddie Mac.
  • The company will offer the Home Affordable Modification program for its own loans and the loans it services for Fannie Mae and Freddie Mac, as well as for other investors unless their servicing contracts prohibit it. These modifications are designed to help struggling homeowners reduce their monthly mortgage payments to affordable and sustainable levels through interest rate reductions, as well as term extensions and principal forbearance.


how does the home affordable loan modification program work
How does the Home Affordable Loan Modification Program Work?

The loan modification program is intended to provide uniform loan modification standards for at risk borrowers. It reduces mortgage payments to a target 31% front-end first mortgage debt-to-income (“DTI”) ratio to make payments affordable and sustainable. This is accomplished by:

  • Reducing interest rates down to a floor of 2%,
  • If the rate reduction is not sufficient, extending the term and reamortizing the loan by up to 40 years (reamortize only if term extension not permitted), and
  • If that is not sufficient to reach the target DTI, forbearing principal.

In addition, lenders and servicers also have other options to achieve the 31% target ratio, such as principal forgiveness, which is permitted but not required, and Hope for Homeowners.


how does it work continued
How does it work? (continued)

Ineligible Borrower:

Not everyone will qualify for the Home Affordable Modification program. For example, borrowers will not qualify if: their mortgage is greater than $729,750 (or higher limits for 2-4 unit properties); their loan was originated after January 1, 2009; their loan is not a first-lien loan; their mortgaged property is not their primary residence; they can afford to make their current mortgage payment; they are current on their mortgage payments and not in imminent default; they have no ability to pay their mortgage or cannot afford to make payments at the 31% target ratio; their income cannot be verified or they are unable to meet other underwriting criteria; or they have no desire to remain in the home.

Bank of America will work with borrowers that are not eligible for the Home Affordable Modification program to pursue other foreclosure prevention options.

90 day trial modifications
90 Day Trial Modifications

Once eligibility is preliminarily determined, the borrower is placed on three (3) month trial period to qualify:

  • The servicer must service the mortgage loan during the trial period in the same manner as it would service a loan in forbearance.
  • The borrower must be current at the end of the trial period to receive a permanent loan modification.
incentives and how they work
Incentives and How They Work

Treasury will partner with financial institutions to reduce homeowners’ monthly mortgage payments. The lender will have to first reduce payments on mortgages to no greater than 38% Front-End Debt-to-Income (DTI) ratio. Treasury will match further reductions in monthly payments dollar-for-dollar with the lender/investor, down to a 31% Front-End DTI ratio for the borrower.

  • Servicers will receive an up-front Incentive Payment of $1,000 for each eligible modification meeting guidelines established under this initiative. Servicers will also receive Pay for Success payments –as long as the borrower stays in the program – of up to $1,000 each year for up to three years.
  • Similar incentives will be paid for Hope for Homeowner refinances.
  • Borrowers are eligible to receive a Pay-for-Performance Success Payment that goes straight towards reducing the principal balance on the mortgage loan as long as the borrower is current on his or her monthly payments. Borrowers can receive up to $1,000 of Pay-for-Performance Success Payments each year for up to five years.
  • One-time bonus incentive payments of $1,500 to lender/investors and $500 to servicers provided for eligible modifications made while a borrower is in imminent default but still current. The servicer will be required to maintain records evidencing that the Trial Period payment arrangements were agreed to while the borrower was less than 30 days delinquent. The servicer must comply with any express pooling and servicing contractual restrictions for modifying current loans.


contributing factors to foreclosure
Contributing Factors to Foreclosure

While there is a workout program for nearly every situation where the borrower has some ability to make a mortgage payment, there is no workout/foreclosure prevention program for:

  • Borrowers who suffer a change of income and cannot afford to pay even the lowest of payments and are unable to sell their property (even through a short sale program).
  • Borrowers who are no longer interested in owning the property and are unable to sell (even through a short sale program).
  • Borrowers who avoid contact with their servicer, and leave no options to coordinate foreclosure prevention.