BofA plan: No job? No house payment

sorry it's been so long since I posted (too much work). Now, this is only an idea right now, but if regulators approve it, AND banks actually implement it, it would be a good thing.......



Bank of America wants to give struggling mortgage customers who are collecting unemployment benefits up to nine months with no mortgage payment.

That's right. Zero payment.

Customers would have to agree that, if they haven't found a job within the nine months, they will sign over their house to the bank. The Charlotte bank would give them at least $2,000 to help with moving expenses.

The proposal needs regulatory approval, and the bank doesn't know when, or if, that will happen.

Some experts say the plan could become an industry model and is the most substantial, creative approach yet to addressing the fallout from stubbornly high unemployment, which is driving mortgage delinquencies and foreclosures.

The plan also could provide families with faster relief, allow them to save money and provide a timetable for making decisions. The bank could avoid millions in collection and foreclosure expenses.

"It's an innovative way for Bank of America to demonstrate it's working with its customers," said Mark Williams, a former Federal Reserve bank examiner. "Regulators should view this as a positive step as well."

The $75 billion federal mortgage-aid program, announced in February 2009, has struggled to fulfill President Barack Obama's estimate of helping millions. Through March, only 230,000 families had received final mortgage modifications under the Home Affordable Modification Program, called HAMP.

The program holds few options for the jobless, even as the U.S. unemployment rate hovers around 10 percent. The Charlotte area's rate is near 13 percent. And more than 6.3 million people nationwide have been out of work longer than six months.

"It's something I would have done," said Bill Sagy, a Bank of America mortgage customer laid off last June from his management consultant position. "That would definitely have worked."

Instead, he spent months working with the bank for reduced payments that he thought would become a long-term modification. But that didn't happen, making him one of a growing group of homeowners who spent scarce resources that didn't ultimately save their homes.

Sagy's Huntersville home, which he bought for $253,000 in 2006, has shed value and is unlikely to sell for what he owes. Without a modification, he's behind on payments and says the bank wants to foreclose.

"It's so frustrating," said Sagy, who with his wife is considering relocating.

Mark Pearce, a leader in national foreclosure prevention efforts, called the plan a step forward.

"This seems like a new idea that offers a lot of positives for both the homeowners and the bank," said Pearce, an N.C. deputy banking commissioner. "There's a nice balance, giving people more breathing space but with a date certain for moving to the next step if things don't work out."

In addition to reducing worries, the program could, for example, mean families are able to keep current with a car payment and avoid repossession. Losing a car makes it harder to find or keep a job. Borrowers also might be better able to afford expenses such as child care, freeing them to attend job fairs and interviews.

Steve Obendorf, who works in the credit-counseling unit of Family Services, a Gastonia nonprofit, likes the idea of giving people "a breather." But the bank also needs to make sure people understand they're agreeing to sign over their homes if they can't get a job. Otherwise, he speculates, there could be a wave of homeowners begging for a reprieve.

Obendorf, who works with people facing foreclosure, said unemployment is the key reason people come in for the counseling services, which are free. He recommends people save as much money as they can during any grace period, so they have a cushion.

Guy Cecala, publisher of Inside Mortgage Finance, said the bank "deserves high marks" for the effort but questions how many people the program could actually help. The self-employed, for example, don't qualify for unemployment benefits. Homeowners with a lot of equity aren't likely to sign up because they would not want to risk losing their home in nine months.

The bank has 1.44 million customers who are 60 days or more past due, nearly 14 percent of the 10.4 million mortgages it services. But it hasn't broken out how many of those might be helped by the proposed plan. Many details, such as eligibility and the application process, also haven't been finalized because the bank can't go ahead without regulators' approval.

Also unclear is whether zero would really mean no payment at all.

That's the goal for Jack Schakett, who is leading negotiations for the bank. That would mean the bank pays bills such as property taxes and insurance during the nine-month break. That's what happens now when a customer is delinquent.

Bank of America, like most servicers, has faced criticism for inept handling of the modification process. Several lawsuits allege the bank hasn't delivered on mortgage modifications. More broadly, the industry is under pressure from lawmakers and the public, angered by financial firms' role in the national meltdown.

Amid the outcry, Bank of America has been scrambling to improve service, including a recent pledge to speed response time for modification customers. Last week, the bank outlined other proposals, including more mortgage help for poor borrowers.

The federal HAMP plan was intended to avoid foreclosure for people with exotic mortgages, by lowering interest rates and otherwise making the loans more stable. But unemployment quickly became the bigger and more challenging issue.

Changes to HAMP announced last month would give people receiving unemployment benefits a three-month reprieve with a lower payment. That's widely seen as too little time. A potential extension to six months also would likely be difficult.

That's because accounting and regulatory guidelines could require lenders to write down the value of a loan if a modified payment plan lasts more than three months. That's bad for the bottom line and, if a lot of loans go sour, banks go out of business.

Bank of America believes its proposed program won't trigger the three-month loss of value. Schakett hopes regulators will endorse the combination of no payments - not technically a mortgage modification - and the upfront customer agreement to give up their house if they can't land a job within nine months.

The bank is betting that giving up nine months of income will pay off by enabling customers to find jobs and restart payments. Nine months is also roughly the length of time it would take for delinquent borrowers to lose their home. So, if customers in the new program can't find jobs, the bank could end up in about the same position as it would have been. And, in theory, the bank and customers will have avoided the draining collection and foreclosure process.

Customers who get a job during the nine months would have the unmade payments added to their mortgage, spread over the length of the contract. If the new job is at lower pay, they'd be eligible to apply for a mortgage modification to reduce payments.

"If they don't get a job, it's not going to work out to save their home, they will at least have built up some cash," said Schakett, the bank's credit loss mitigation strategies executive, in an interview last week. "It's not as good as staying in their home, but they at least will be financially able to settle themselves in another home, to make the transition more dignified."

Most lenders provide short-term, usually three-month, payment reduction plans, called a forbearance. Bank of America's would be the first wide-scale, zero-payment plan, and it would last longer and be more streamlined.

"It gives them wiggle room to limp along with their customers until the economy comes back," said Williams, the former bank examiner who has just released a book on the financial crisis, "Uncontrolled Risk."

There are signs of economic recovery, including big stock market gains, but the housing market and job growth remain weak.

"There is a bet here, that the economy will be stronger ... but there's still looming uncertainty," Williams said. Still, he said, the bank is "setting a potential standard. If it works, it will be imitated by other large banks."