Bank of America announced today that they are going to be cutting principal balances for homeowners. The homeowner must be 60 days behind and 120%+ underwater. Bravo! Bravo! This is great news and a great effort! In an attempt to rectify some of the adjustable rate mortgages that were levied to millions of Americans, they are now going to offer serious principal reduction, allowing homeowner’s to reduce balances to the homes current market rate. Homeowners may have some serious relief to the once trendy pay option arm loans and the other ample programs that have caused homeowner’s so much grief.
Perhaps this is an effort to console the “strategic defaulters,” which are a huge element of this foreclosure wave. A strategic defaulter is someone who realizes they may never recoup the amount of equity lost when the market tanked. Typically someone who understands the nature of the current mortgage game and realizes the long term health and wellness of both their credit and financial situation may recover more quickly than the housing market. For these people a foreclosure or short sale has been their remedy. Which until now, was a viable solution.
I would hope with this BofA movement on principal reduction it will influence other banks, both large and small to take larger initiatives to rectify the current mortgage crisis. We’ll see how this pans out. I encourage homeowner’s to give it a try. Be careful of the loopholes and ask a lot of questions. Feel free to give me a call to discuss the challenges this may present in a future sale or refinance. Jennifer Klein (916)230-3880 or email JenKleinSac@gmail.com.