Bank of America Mortgage Modification Plan – Good or Bad?

If you’ve been watching the news over the last year and a half it’s all about foreclosures and job loses.  Some states (Michigan, Nevada, California, Florida) have been crushed by foreclosures.  This has meant a steady decline in home values.  So the ripple effect is that people that want to sell their homes can’t get what they are worth and a lot of properties are sitting abandoned in certain neighborhoods.

The huge bailout that Wall Street received from us American Tax payers was suppose to help this situation but all they did was save their asses and pay-out big F”in Bonuses to employees that got us in the situation.  If you’ve been reading my blog postings you know that I don’t dwell on the past.  So the President and congress has came up with a program asking banks that took government money to figure out a plan to help people keep their homes.

So here’s their new plan:  Bank of America is the only bank that has stepped up so far…you must be 2 payments behind and your mortgage must be 25% more than your home is worth on the market.  If this is the case you will be eligible to refinance your home at a lower interest rate, the mortgage company will forgive the 25% principal that you are upside down in value and lower your monthly mortgage payment.

Sound’s good so far for the people that just got into trouble but what about the people that have kept up their payments?  They never want to really do what can really help people get back in shape financially.

Problem #1 – the 25% forgiven principal will not just go away.  The mortgage company is going to write that off and send the family a 1099 form for that amount as income.  BIG TAX HIT!  You see…we can run away from a house and mortgage company if we can’t afford it, but UNCLE SAM – Tax Man we can’t run from.

Problem #2 – it doesn’t stop these families from refinancing again.  I’m not into telling people what to do, but I’ve seen families in my neighborhood get new stuff by refinancing their homes and using the money to pay for it.  Not understanding that they would have to pay it all back some day.

Problem #3 – are they going to do credit checks?  If so, that may disqualify 99% of the applicants.

Problem #4 – are they going to do a full income verification?  If so, that may disqualify 99% of the applicants.

Stay tuned for more information as its released.  The details are still sketchy.

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