Bank of America recently reached a deal with investors that could help them get through their back-log of borrowers at risk of foreclosure. Under terms of the settlement Bank of America will start transferring borrowers who are behind on their payments to subservicers. The idea is that these subservicers will be more efficient than the behemoth that is Bank of America. With 1.3 million borrowers currently at risk of foreclosure Bank of America has provided fewer modifications as a percentage of unpaid principal than Chase, Wells Fargo, and JPMorgan and it takes nearly a year longer than Wells Fargo to move a subprime borrower’s home from foreclosure to final sale. The average Bank of America borrower has not made a payment for 18 months by the time they reach foreclosure.
Most of the loans that are being transferred to subservicers are loans made on homes originally financed by Countrywide which was subsequently bought by Bank of America in 2008. While this settlement could mean that homes are foreclosed more quickly it is also intended to speed up the response time to loan modification requests. Subservicers will have 60 days after receiving the necessary paperwork to provide an answer to homeowner modification requests. There will also be a financial incentive to the subservicers for each permanent modification. It is unclear at this time what the income requirements will be for modification but many servicers require that the new monthly payment not exceed 31% of the borrowers gross monthly income.
While many people think this move is generally positive there are a number of skeptics taking a wait and see philosophy. Many of them are pointing to a similar arrangement made by Bank of America in 2008 that didn’t seem to make much of a dent in the problem. What is clear is that Bank of America hasn’t been able to deal very well with the problem on it’s own to date.
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