B of A to help underwater homeowners
TEXT OF INTERVIEW
Steve Chiotakis: As the housing market has tanked in this country, you now more than likely know what being “underwater” means. That’s owing money on a mortgage beyond what a home is actually worth. Reuters reports Bank of America today will announce a plan that’ll forgive some of that amount. Marketplace’s Brett Neely is with us live this morning from our Washington studio with the latest. Good morning, Brett.
Brett Neely: Morning, Steve.
Chiotakis: So how’s this plan gonna work?
Neely: Well it’s only going to apply for people who owe more than 120 percent of the value of their house and for some adjustable-rate mortgages that are near default. And starting in May, Bank of America will make the loan equal to what the house is actually worth, which could cut what homeowners owe by up to 30 percent. And in return, borrowers have to stay current on their mortgage payments for five years.
Chiotakis: And how big a deal with this, Brett?
Neely: Well, the government has wanted lenders to reduce what borrowers owe for awhile so that people will stop walking away from their underwater mortgages. I just got off the phone with Chris Mayer, who’s a real estate expert at Columbia University, and he says he’s seen lenders make enough of these announcements that he wants to wait and see the details.
Chris Mayer: If they’re saying they’re going to do it all the time, then this is going to be a really big program. If they’re saying they’ll consider doing it, the question as it has always been, isn’t so much announcing a big program, it’s how often do you do it?
Chiotakis: All right, so there are some questions about private plans such as this one, Brett, but what about the government’s loan modification plans? I mean how does this fit in?
Neely: Well actually, it comes as the government’s own efforts haven’t done so well. Just yesterday, the inspector general of the government’s TARP program said the Administration’s loan modification program will likely fail. That program has tried to reduce the interest rate borrowers paid, but not principal. And right now, it’s only going to less than two million homeowners.
Chiotakis: Marketplace’s Brett Neely reporting from Washington this morning. Brett thanks.
Neely: Thank you, Steve.
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