(Source: BusinessWeek) Bank of America Corp., the largest U.S. bank, agreed to modify some home-equity loans through the government’s Home Affordable Modification Program amid criticism from bond investors and consumer groups over the federal effort to limit foreclosures.
Bank of America, which handles 14 million home loans including 3 million second-lien mortgages, is the first mortgage servicer to sign a contract committing it to the program, the Charlotte, North Carolina-based company said today in a statement. Chief Executive Officer Brian Moynihan made a “verbal commitment” to the program during a meeting with Treasury Secretary Timothy F. Geithner earlier this month, the bank said.
“For many homeowners facing severe financial difficulty, decreasing the payment on the first mortgage without a reduction in the payment on the second lien may not produce an affordable combined mortgage payment,” Barbara Desoer, president of Bank of America Home Loans, said in the statement.
President Barack Obama has said the HAMP program would target as many as 4 million Americans struggling to hold on to their homes. The plan successfully modified 66,465 first- mortgage loans as of Dec. 31, with almost 800,000 more in trial plans, according to data released Jan. 15 by the Treasury Department.
Mortgage-bond investors including BlackRock Inc., the world’s largest asset manager, and Pacific Investment Management Co., which runs the world’s largest bond fund, have objected to the treatment of second-lien debt under the Obama administration’s $75 billion loan-modification program, saying it should be wiped out before first mortgages get changed.
The announced second-mortgage program does little to encourage the forgiveness of mortgage principal, what’s most needed in order to curb soaring foreclosures, said Bruce Marks, chief executive officer for Neighborhood Assistance Corp. of America, the Boston-based consumer group. The government is concerned that the four largest U.S. banks, including Bank of America, are holding more than $400 billion of home-equity loans with limited reserves set aside for potential losses, he said.
“If they were to start writing them down to their true value, the banks would be insolvent,” Marks said in an interview last week. Officials are “scared to death of what would happen.”
The federal government is encouraging lenders and servicers to sign up for its program, William Apgar, senior adviser for mortgage finance to the Housing and Urban Development Department, said today at a housing conference in Washington. Second liens are “not an easy problem to solve,” he said.
“There are no plans to rework or revamp the second-lien program,” Melanie Roussell, a HUD spokeswoman, said in an interview.
Bank of America’s Desoer said reaching a deal before the release of the final program guidelines “is a continued demonstration of Bank of America’s strong overall commitment to homeownership retention.”
The Treasury Department announced the program in April.