Are you one of the “lucky” ones?
Bank of America announced late Friday that it is in the process of mailing roughly 150,000 letters to distressed homeowners, offering to pay off their second mortgages as part of the national foreclosure settlement.
Before this announcement, they had been lacking in the assistance department and getting bad press because of it.
The Charlotte-based bank said it began mailing the letters back in July, and will continue to inform pre-qualified homeowners throughout the year.
The program is opt-out, meaning the borrower’s second mortgage will be fully paid off, or “extinguished,” unless the customer contacts the bank within 30 days of receiving the letter to decline the offer.
By paying off the second mortgages of struggling borrowers, Bank of America said its goal is to put homeowners in better equity positions in the hopes they’ll get back on their feet.
In other words, if they can remove the burden of a big second mortgage and push the borrower’s loan-to-value ratio below 100%, homeowners might change their tune and ride out the storm, especially with the prospect of rising home prices on the horizon.
Who Qualifies for Relief?
First and foremost, you must have a second mortgage. That’s a big no-brainer.
On top of that, the mortgage must be owned and serviced by Bank of America, though it technically doesn’t matter who owns the first mortgage.
Bank of America only seems to be offering this assistance to those behind on their mortgage payments, namely second mortgages.
However, there may be cases where borrowers are current on their second mortgages and delinquent on the first, probably because payments on the former are more manageable.
At the moment, only those who receive the letters are eligible, so calling the bank probably won’t get you very far.
But you can still contact the bank to see if you’re eligible for other relief, such as a loan modification via their proprietary program.
What Are the Implications?
Well, because the entire second mortgage is being paid and closed, it will no longer get in the way of any foreclosure proceedings.
So there is a dark side to this potentially, assuming the borrower is in the process of foreclosure and the second mortgage was complicating an otherwise streamlined process.
Bank of America explicitly mentions that the elimination of a second mortgage won’t necessarily stop foreclosure proceedings tied to the first mortgage.
At the same time, the lack of a second mortgage means it won’t stand in the way of a possible loan modification or a short sale, so it goes both ways.
Still, most second mortgages are going for pennies on the dollar in short sale transactions, and with that opt-out business, you have to wonder.
When it comes to credit scores, Bank of America will report the account as paid and closed, meaning it shouldn’t hurt (or necessarily help) the consumer in any way.
This also means Bank of America won’t come after the homeowner for a deficiency judgment, though the forgiveness of debt could trigger a tax liability if an exception isn’t granted.
Ally/GMAC, Chase, Citi, and Wells Fargo are the other lenders involved in the 49-state settlement announced back in February, which doesn’t include Oklahoma.