Bank of America Weighs Principal Forgiveness in Settlement Talks
Carrie Bay
BofA, along with the nation’s four other largest mortgage servicers, has been in discussions with the state and federal officials to settle investigations into foreclosure practices involving faulty paperwork and illegal affidavits. Talks have been ongoing for months now.
The June 15th target date for a settlement, which had been set by lead representatives for the states, has come and gone and an agreement between the parties has remained elusive.
In a recent research note, the ratings agency DBRSdescribed the lack of a settlement “disappointing.” The firm’s analysts wrote that the “stalemate only further postpones potential recovery in the housing market, which is central to the broader economic recovery.”
The key sticking points for each side center around principal-reducing modifications (the AGs want the mandate written into a settlement while the banks have spoken out against it) and a blanket release of liability shielding servicers from future litigation (the banks feel the settlement should indeed settle all states’ charges but some AGs say any joint agreement should not prevent them from pursuing their own actions).
The Wall Street Journal’s Dan Fitzpatrick and Ruth Simon write that as negotiations with all five mortgage servicers as a group missed the mid-June target date, Bank of America began urging the government officials to kick things into high gear and put forth its own proposal for principal write-downs in exchange for liability protections.
According to the Journal, under BofA’s plan, borrowers would have to prove financial hardship to qualify for a modification involving a reduced principal, and the original principal amount would be limited to $1 million, or lower in some geographic regions.
Bank of America could reduce the amount of money it is required to pay as part of the group settlement the more principal reductions it agrees to, the Journal said.The paper says the other four servicers are currently engaging in their own individual negotiations with the state attorneys general and federal agencies, but it is not yet known if principal write-downs are part of those talks.
Bank of America could not immediately be reached for comment after business hours.