March 9, 2011 (Chris Moore)
Bank of America representatives said on Tuesday that the Obama Administration’s $20 billion proposal to try to force banks to write down mortgage principals was unworkable and unfair to borrowers who had managed to stay current on their loans, a point made previously here on LoanRateUpdate.
“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,” said Brian T. Moynihan, the chief executive of Bank of America. “Our duty is to have a fair modification process.”
Officials at Bank of America, the nation’s biggest mortgage servicer, argue that any effort to help troubled borrowers should not penalize borrowers who are underwater but have managed to make their monthly payments.
Bank of America executives also added that writing down billions of principal now could actually retard the recovery by encouraging borrowers to default.
“There may be as much as $1 trillion worth of mortgages that are underwater,” said Terry Laughlin, the Bank of America executive whose unit, Legacy Asset Servicing, handles mortgages that are delinquent or in default. “What do you do for those borrowers that have a job but have negative equity and have paid on time and honored their obligations?”
“This is an unsolvable question,” he said. “It’s a very slippery slope.”
The Obama Administration, all 50 state attorneys general, along with a host of federal agencies are pushing major mortgage lenders to settle claims of foreclosure abuses that will reportedly cost the industry over $20 billion dollars. The money would then be used to reduce principal balances of homeowners facing foreclosure.
Despite the criticism that the mortgage industry has received concerning it’s handling of the foreclosure crisis, Bank of America pointed out that it has completed over 800,000 loan modifications in the past three years, and that number is rising.
Private loan modifications made by mortgage servicers outnumber the amount of loan modifications made by the government’s flagship program, HAMP, by over two to one.
Officials at Bank of America, as well as other affected mortgage servicers, so far have declined to comment on the specifics of the president’s 27-page proposal. Comments made by Bank of America officials were made at a daylong meeting with investors and analysts in New York.
However comments made by Bank of America officials on Tuesday may squelch the optimists who on Monday predicted that a settlement may come as quickly as two weeks and could more likely be a precursor of arguments the industry is poised to make in the weeks ahead.
Tom Miller, the Attorney General of Iowa and one of the leading advocates of penalties against the mortgage industry, had a more realistic time frame when he said on Monday that a settlement would probably take at least two months.
Read more about the Presidents proposal here and whether we should reduce mortgage principals here.
Tags: Obama’s $20 billion proposal, mortgage principal reductions, modification process, Bank of America, mortgage servicers, mortgage industry