Bank of America Mortgage Loan Modification Settlement will provide $1 Billion for Floridians, according to Florida State Attorney General Pam Bondi. The monies will be used to provide Floridians with mortgage loan modifications and principal reductions, as well as assisting in buyers obtaining mortgages.
Bank of America Agrees to $16.65 Billion Settlement over Sale of Bad Mortgages. Under the deal, however, an estimated $7 Billion dollars goes as a further “soft dollar” credit for banks to assist homeowners in obtaining mortgage loan principal reductions and loan modifications. When the bank assists a homeowner in obtaining a principal reduction (meaning that a portion of the principal amount of the mortgage is forgiven, usually to bring an underwater home closer to its fair market value), the bank will receive a soft dollar financial credit from the federal government which goes towards the amount of the settlement.
Many believe, though, that the actual deterrent affect to the bank will be less than the large numbers suggest. The settlement in part was to deter future wrongdoing in issuing the types of bad loans which led up to the financial and foreclosure crisis. Loans requiring no documentation (no-doc loans), failing to properly qualify and underwrite loans, and generally providing loans to those who just were not qualified, all were a factor in creating the foreclosure and financial crisis affecting the United States, and particularly Florida.
It is claimed that the the deterrent affect to the banks is lessened by tax deductions that the bank is allowed to take on the banks’ settlements with the states and federal agencies. This leads to the burden of the settlements back onto taxpayers, including those homeowners hurt by the shoddy bank loan procedures.
Nonetheless, this and other bank settlements are providing a unique historical opportunity for homeowners to modify the payments on their mortgage loans and to obtain principal reductions to bring the amount of their loans closer to the fair market value of the homes. Further, the settlements provide opportunity for home buyers in the low to moderate income category.
It is estimated that Bank of America will forgive billions of dollars in mortgage principal, mostly for low to moderate income borrowers.
A further benefit to homeowners under the settlement is that Bank of America is supposed to contribute monies to homeowners tax bills under the settlement. While usually when debt is forgiven, the amount forgiven is taxable, so that if a homeowner obtained a principal reduction on their mortgage they would be taxed on the amount forgiven. This could lead to huge tax bills for the homeowner, which often would be likely above their ability to pay. Under a previous law under the Bush administration, on principal residences the amount forgiven was exempt from this tax. However, congress has failed to renew this law so that homeowners obtaining a mortgage loan modification are still subject to this tax. Under the settlement, Bank of America is to assist in funding these tax bills. It also remains to be seen, however, whether congress will renew the Bush era exemption.
In all, given the bank settlements, now is apparently a once in a lifetime opportunity to obtain mortgage loan modification assistance and principal and interest reductions on homes.
A Southern District of New York Judge has ordered Bank of America to pay $1.27 billion dollars for mortgage fraud. The fraud occurred when Bank of America’s Countrywide unit intentionally defrauded Freddie Mac and Fannie Mae by selling them loans that purported to be of high quality when in fact they were extremely under-performing. Countrywide got these bad loans off of their books at the expense of Freddie Mac and Fannie Mae. Bank of America, which purchased Countrywide, was found civilly liable under the Financial Institutions Reform Recovery and Enforcement Act (FIRREA).