Bank of America to help Arizona modify home loans

A new agreement with the nation's biggest lender could help many Arizona homeowners struggling to afford their mortgage payments.

Bank of America plans to announce today that it will begin offering loan modifications under an Arizona foreclosure-prevention program funded by federal dollars.

The state provides money to pay off up to $50,000 of a mortgage if the bank agrees to forgive an equal amount, meaning borrowers who qualify can cut the amounts they owe by up to $100,000.


BofA is the first major lender to sign on to the plan, which is funded by $268 million from the Treasury Department's Hardest Hit Housing Program.

Since the Arizona Housing Department started taking applications in September, only one homeowner in Arizona has obtained a loan modification through the program.

Officials say lenders have been reluctant to reduce loan amounts.

Michael Trailor, director of the Housing Department, said he is optimistic the agreement will help spur many loan modifications. He said 40 percent of the 1,300 requests the agency has fielded have been from BofA customers.

It is unclear, though, how many borrowers ultimately will get a modification.

For many homeowners who make their payments to BofA, their loans actually are held by government-owned agencies Fannie Mae and Freddie Mac. Those agencies have not agreed to the principal-reduction loan modifications.

The agreement applies only to loans owned by BofA. Borrowers uncertain about whether they qualify may know soon.

This week, BofA will begin mailing notices to Arizona homeowners who are eligible for the loan modifications, bank spokesman Rick Simon said.

"If a homeowner is 60 days' delinquent and eligible for the state's principal-reduction program, it will be the first thing we offer them to avoid foreclosure," he said.

Simon said the bank is encouraging customers to wait for those notifications rather than contacting the bank to find out if they qualify.

Trailor is encouraging homeowners who receive notice from BofA to contact their lender and the Housing Department as soon as possible.

Modifications

After the national crash in home values, many people owned homes that were worth less than what they owed.

That meant people were unable to refinance or sell if they could no longer afford the mortgage because of a job loss. The problem has been particularly pronounced in metro Phoenix, where home values plunged by more than 50 percent.

As a possible solution, the federal government has funded programs to encourage lenders to modify loans, reducing homeowners' payments by lowering the interest rate, changing other terms or simply forgiving part of the debt.

But although lenders sometimes are willing to cut interest rates - a separate federal program launched in April 2009 rewards them for doing so - few have been willing to forgive principal.

In February 2010, the Treasury Department launched its Hardest Hit Housing Program to aid states facing the biggest foreclosure problems, and Arizona officials chose to focus much of the money on encouraging principal-reduction loan modifications.

Qualifications

To qualify, borrowers must be able to show their income was cut through unemployment, underemployment, illness, death or divorce, but they must have some income and owe at least 20 percent more than their home is worth. Those who took out a second mortgage that wasn't used to buy the home are not eligible.

Borrowers who qualify have their principal reduced and their loan restructured to lower the payments based on the reduced loan amount.

The state's housing agency began taking applications for loan modifications in September. But, so far, only one homeowner has succeeded. The borrower saw his loan balance reduced by $40,000 through a deal between the Housing Department and local lender National Bank of Arizona. His monthly payment dropped by almost $250.

More than 1,300 Arizona homeowners have completed an online form to see if they are eligible for the state's loan-modification program. Almost 250 of those people filed applications.

So far, 30 homeowners have been approved by the state agency for the program. But the state has said lenders have not yet agreed to those deals, which require them to forgive a portion of the loan.

Homeowners have not yet received loan modifications with principal reductions through similar federally backed programs in California and Nevada.

Housing agencies in those states are negotiating with BofA to participate in their federally backed loan-modification programs.

Although most of the money in the program is intended to encourage loan modifications, a second portion will cover up to $50,000 in mortgage payments for unemployed or underemployed residents.

Last month, the state housing agency began taking applications for that aid; eight homeowners have applied, and three have been approved.

Wider guidelines

Trailor said his agency is working to expand guidelines for both programs so more people can qualify, partly by easing the rule that bars borrowers who took out a second mortgage.

Homeowners who receive monthly-payment help will be encouraged to apply for the state's principal-reduction loan modifications when they are working full-time again.

"Principal-reduction modifications are tough for lenders. They are scared all homeowners are going to ask for them, including those not facing foreclosure," Trailor said.

"But these aren't normal times we are dealing with now. We have to stop the next wave of foreclosures."

by Catherine Reagor The Arizona Republic Mar. 2, 2011 12:00 AM





Bank of America to help Arizona modify home loans