Bank of America Announces Loan Forgiveness Plan

Bank of America has announced that it will start forgiving some portion of home loans of borrowers who have underwater mortgages. The company said that the scheme would allow borrowers to save their home from going into foreclosure.

Ever since house prices started crashing, the foreclosure situation has been worsening. When the value of a property goes below its remaining mortgage amount, homeowners tend to give up on the debt and prefer a foreclosure. Another reason for increasing foreclosures is that a lot of homeowners have lost their jobs and simply cannot keep up with their payments.

The government has been trying to look for ways to reduce the number of people losing their homes, and had urged banks to be more proactive in improving the situation. Bank of America’s move seems to be in response to those requests, as it would save homeowners from foreclosure by reducing their payments and principal amount.

However, not all borrowers are eligible to apply for a mortgage modification under the scheme. The offer would only be on an invitation basis. The bank said that it would reach out to those who are the hardest hit by the crash in the housing market – people who have a mortgage balance of at least 20% more than the value of the property. The bank has an initial target of reaching out to 45,000 homeowners. The total reduction amount would be close to $3 billion.

Critics of the scheme say that borrowers who have kept up with their mortgage payments could feel cheated. They say the scheme is like a disincentive for those who have gone through severe financial stress to keep their home from going into foreclosure. But the company said that it would ask homeowners to show concrete evidence of hardship before they are given a reduction.

A Bank of America spokesperson said that the maximum debt reduction under the scheme would be 30%. But there are some conditions attached to the offer. The loan would not be reduced immediately; instead, the reduction will be passed on to the borrower in parts on a yearly basis. Every year that the borrower keeps up with his mortgage payments, a part of the debt will be reduced.

The scheme has come at a time when there are rising concerns that the housing market is worsening. Many real estate analysts believe that the market is set for another period of price falls as the sales are dropping and supply is exceeding demand.

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