HOUSING: Who qualifies for a lower payment?

By ZACH FOX - Staff Writer | Monday, October 6, 2008 8:00 PM PDT ∞

A new loan modification program announced Monday aims to prevent 125,000 vulnerable Countrywide customers in California from losing their houses to foreclosure.

For months, community housing activists have complained that lenders have not moved fast enough to cut mortgage payments so that homeowners can avoid foreclosure. The new program by Bank of America, which acquired Countrywide in July, is an ambitious effort to stem the tide of foreclosures.

In all, the program ---- the result of a legal settlement between the bank and 11 states ---- is expected to cost Bank of America up to $8.4 billion in payment reductions.

Do you qualify for a reduced mortgage payment, and what will it mean?

Here are some of the guidelines:

-- Loan modifications are aimed mainly toward subprime or negative-amortization loans, products where payments can jump suddenly. Customers with fixed-rate mortgages could be eligible for the program if they can prove a hardship, such as job loss.

-- The modifications will be directed toward borrowers who are already delinquent or might soon become delinquent because of a payment adjustment.

-- Those who qualify will receive interest rate reductions or principal write-downs, meaning they will owe less on the house. The modifications will aim to reduce payments to 34 percent of the borrowers' income.

-- Foreclosure proceedings will be suspended for any eligible participant.

-- Modifications are not available for home equity lines of credit or second mortgages.

-- Borrowers who have already gone through the foreclosure process or are immediately facing foreclosure might be eligible to receive funds from a pool of $200 million that Bank of America will provide for moving expenses.

-- There will be no cost for any modification, and all prepayment penalties will be nullified.

-- The program applies to Countrywide customers who occupy the home listed on the mortgage.

-- Negative equity, or owing more on the mortgage than the value of the house, does not automatically qualify a borrower for a payment reduction, said Terry Francisco, spokesman for the lender. Borrowers must prove a financial hardship.

Contact staff writer Zach Fox at (760) 740-5412 or zfox@nctimes.com. Read his blog, "On the Realside," at nctimes.com/blogs/minding_your_business.

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