Real Estate Rentals

Many may lose homes in Bank of America deal

NEW YORK – Tens of thousands of Bank of America Corp.’s most distressed borrowers could be evicted and lose their homes more quickly as a result of a proposed settlement between the bank, which is the country’s largest mortgage servicer, and investors in its troubled mortgage securities.

For struggling borrowers in better financial shape, the outcome could be more positive: The deal would include incentives for mortgage servicers to help homeowners who have fallen behind on their payments and whose homes are worth less than what they borrowed.

“The goal is to reinstate as many borrowers in a modification that performs well,’’ said Tony Meola, a servicing executive with Bank of America. “It also is likely to lead to faster resolution in those unfortunate situations where foreclosure is inevitable. While not a desirable outcome, the recovery of the housing markets depends on moving through the foreclosure process as quickly and fairly as possible.’’

While powerful investors stand to benefit from the $8.5 billion settlement over the bank’s bundling of shoddy mortgages as securities, the fallout for the nearly 275,000 borrowers who took out those loans depends greatly on how deep they are in the foreclosure process and whether they earn enough money to dig themselves out.

While no exact income qualification has been set as part of the agreement, which was announced last month, many servicers use a formula in which borrowers can qualify for a modification as long as the new monthly payment does not exceed 31 percent of a borrower’s monthly gross income.

For borrowers who are unemployed or lack the income to cover even reduced mortgage payments, foreclosure and eviction could be much more immediate.

With 1.3 million borrowers at risk of foreclosure, Bank of America has been overwhelmed by the surge in defaults, and the accord has raised hopes that this logjam will finally begin to ease. But skeptics said that previous arrangements, like another multibillion-dollar settlement by Bank of America in 2008, have barely made a dent in the problem.

Still, for some of the homeowners now facing foreclosure who took out loans with Countrywide, the subprime specialist bought by Bank of America in 2008, the deal could bring a few quick improvements.

Under the terms of the agreement, Bank of America must now start the process of transferring these borrowers to 10 smaller outside servicers, even without the deal being approved in court, which is not expected before November.

The architects of the settlement say these subservicers will be far more efficient than Bank of America’s giant payment processing operation.

One unintended consequence of the problems at Bank of America and other large servicers is that many borrowers have managed to remain in their homes despite being in default, and without the income to qualify for a modification. At the time of foreclosure, the typical Bank of America borrower has not made a payment in 18 months.

What is more, according to the analysis of RBS data, it takes 30 months on average for a subprime borrower’s property to move from foreclosure to a final sale with Bank of America, nearly a year longer than Wells Fargo, and 10 months longer than SPS, a smaller subservicer likely to be among the 10 selected to take over the former Countrywide loans.

“Countrywide made a lot of bad loans and borrowers with no money can’t afford a modification,’’ said Peter Swire, a former special assistant for housing policy in the Obama administration who helped oversee earlier federal efforts to promote modifications. He is now a professor at Ohio State University.

“One discouraging problem is that only a small fraction of Countrywide borrowers will likely qualify,’’ Swire said.

Delores Gosha hopes she will be one of the lucky ones.

It has been more than a year since she last made a mortgage payment to Bank of America, raising the risk that her bungalow in the Cleveland suburbs will end up in foreclosure. The bank, she said, has given varying answers as to whether she qualifies for a modification, telling her she did not at one point last week only to reverse course days later and say it was still under consideration. Gosha said she had had to deal with a multitude of representatives and submit the same documents over and over.

While a new servicer might not give her the answer she has been praying for, she said, at least she will get an answer.

“I’ve been up and down,’’ said Gosha, who is a clerk at a Cleveland hospital. “Can’t somebody tell me something?’’

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Tags: America, America Deal