Bank of America, the nation's largest bank,announced new initiatives Thursday intended to keep military families from losing their homes to foreclosure.
The new programs come as big banks facenational scrutiny over their foreclosure practices and a potential overhaul of the foreclosure system looms. The bank said its new programs would offer mortgage principal reductions for some military borrowers who have fallen behind on their payments.
The plans also call for a reduced 4% interest rate on mortgages for those eligible under theServicemembers Civil Relief Act. The bank also said it would create a mortgage unit dedicated to servicing military members.
The housing crisis has hit military families particularly hard. Many who bought during the boom and now must relocate because of fresh orders are faced with selling their homes at a big loss. With few buyers and renters, particularly in hard-hit markets, they also are faced with options that include renting at a loss, separation from their loved ones or, in some cases, foreclosure.
Big banks reportedly have foreclosed on military family members in violation of a law meant to protect them. (Take a look a this article by the New York Times and this article by U.S. Banker.)
Bank of America is rolling out the program only to loans owned and serviced by the bank. Some loans that the bank services are owned by outside investors, and the bank said it is negotiating with those investors to see if it can expand the program to include all of its military customers.
The principal reduction component of the plan announced by Bank of America would be significant, lowering the amounts raised on some mortgages to as low as the current market value of those homes. The bank said it would offer interest rate reductions on top of principal reductions as needed and when possible.
The plan to write down principal comes as Bank of America’s own chief executive this week pushed back on writing down loans for troubled borrowers. In seeking a global settlement, government agencies have proposed penalties against banks ranging from $5 billion to $20 billion. That money would be used to fund principal write-downs, officials have said.
"There’s a core problem that if you start to help certain people and don’t help other people, it’s going to be very hard to explain the difference," Moynihan said earlier this week, according to the New York Times. "Our duty is to have a fair modification process."
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