By James Sterngold, Joel Schectman and Christina Rexrode
Consumers are set to receive $7 billion in "relief" from Bank of
America Corp. as part of the lender's record settlement with
government agencies. That is more than the combined relief awarded
in similar settlements reached by J.P. Morgan Chase & Co. and
Citigroup Inc.
The relief to be provided by Bank of America includes reductions
in mortgage principal and monthly payments for consumers struggling
to hold onto their homes, funds to take over and tear down derelict
housing and assistance for building or refurbishing affordable
rental properties.
But the Bank of America deal also shows a move by the government
to respond to criticisms of their past deals, specifically that
they weren't focused enough on problems lingering from the
recession for low-income borrowers.
Eric T. Schneiderman, New York state's attorney general, said in
an interview that under Thursday's deal, low-income and minority
homeowners will receive a far larger portion of the benefits than
in previous government settlements.
"What you are seeing in each settlement is an attempt to make it
a little better," said Ira Rheingold, executive director of
National Association of Consumer Advocates, a nonprofit
community-advocacy group.
Consumer advocates had been critical of homeowner relief in past
settlements because the assistance was seen as too unfocused. Too
little of the relief had been aimed specifically at the homeowners
who needed the help the most and too much was targeted toward
giving incentives to actions that homeowners were likely to do
anyway, like unloading properties through short sales, Mr.
Rheingold said.
In the Bank of America settlement, Mr. Rheingold said, millions
of dollars will be available to help take over houses long
abandoned and either refurbish or raze them. That can help preserve
the value of surrounding homes.
Depending on their circumstances, consumers may be able to get
relief through Bank of America's existing programs, though others
may need to wait for the bank to implement the new settlement
terms.
The bank said the new relief program won't be fully operating
until sometime in the fourth quarter.
For the first time, there will be incentives for a bank to offer
reductions in the balance or mortgages insured by the Federal
Housing Administration, which are often in low-income and minority
communities. The settlement provides $1.75 of credit against the
consumer-relief total for every $1 the bank forgives for FHA-backed
loans.
Bank of America also will provide funds for the improvement or
development of affordable rental housing for people with low
incomes.
Additionally, the bank may pay up to $490 million to cover taxes
distressed homeowners may owe when some of their mortgage debt is
forgiven, according to the terms of the settlement. However, that
portion of the payment may not be necessary if Congress decides to
extend the Mortgage Forgiveness Debt Relief Act, which expired at
the end of last year.
The latest settlement differs from its predecessors in another
way: To get credit toward the penalty in its settlement, Citigroup
has to reduce a loan balance enough so a homeowner doesn't still
owe more than the house currently is worth.
But the Bank of America settlement takes it one step
further--stating that after the loans are modified, homeowners need
to owe no more than 75% of the property's current value, a step
consumer advocates say makes sliding back into default less
likely.
"They are giving the homeowner actual equity in the property
instead of just bringing them above water," said Andrew Jakabovics,
a senior director at Enterprise Community Partners, which has
studied the settlements extensively.
In coming months, the bank will be responsible for scouring its
mortgage portfolios, identifying eligible homeowners and contacting
them for relief. Meanwhile, eligible homeowners also can call a
number the bank set up under previous government settlements:
877-488-7814.
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