BofA Scheme May Help Cut Further Foreclosures in Los Angeles

by Peter Vernon on cities

The mortgage debt forgiveness program of Bank of America may further slow down foreclosures in Los Angeles, as the Home Affordable Modification Program had relatively more impact in Los Angeles County than in other areas.

According to reports from the Treasury Department, the Los Angeles metropolitan area ranked second in the percentage of home loans modified since the start of HAMP. As of the first month of this year, a total of 48,778 loan modifications in the Los Angeles area have been processed and 6,383 of these were already put into permanent modification status.

HAMP activity in Los Angeles soared to 5.8 percent of all residential loans in the area. Only New York City, which posted a HAMP rate of 6.1 percent, had a higher percentage of HAMP activity.

Nationwide, almost 1.3 million distressed homeowners were offered trial modifications and only 116,000 of these received permanent modifications as of January.

California foreclosures, meanwhile, are also being slowed down by HAMP activity as 167,399 of these foreclosures are being rescued by HAMP. As of January, 24,242 of these trial modifications have been put into permanent status, among the highest HAMP numbers in the nation.

Because of the relatively better performance of the HAMP initiative in Los Angeles, the new effort of BofA to forgive part of the loan principal and rescue distressed homeowners is expected to further slow down the pace of foreclosures in Los Angeles.

According to Barbara Desoer, president of BofA Home Loans, the bank program will be carried out in coordination with the federal HAMP and the National Homeownership Retention Program. The bank will forgive part of the principal for borrowers who are underwater by 20 percent or more and who are in default by two months.

For qualified BofA mortgage borrowers, the bank will place a significant portion of their debts into interest-free forbearance accounts for a period of several years. Borrowers can have up to 30 percent of their principal loan balances put into the forbearance account as long as they sustain their monthly payments.

BofA said that initially, the loan forgiveness program will help 45,000 mortgage borrowers and is expected to cut down principal loan balances by $3 billion. The scheme was launched by BofA as part of its agreement with federal regulators in connection with its problems concerning the risky loans written by Countrywide Financial Corp.

With this additional lender initiative, it is hoped that more foreclosures in Los Angeles will be remedied.