Bank of America wants to suspend mortgage payments for jobless

Bank of America wants to give struggling mortgage customers 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.

More relief

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 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, N.C., 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 North Carolina 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.”

Reducing worries

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, N.C., 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 seek free counseling services. He recommends saving as much as possible during any grace period to build a cushion.

Guy Cecala, publisher of Inside Mortgage Finance, said the bank “deserves high marks” for the effort but questions how many the program could 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

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.

Source: McClatchy Newspapers, by Stella M. Hopkins (04/25/2010)

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