Bank of America has announced that it will be forgiving some principal amounts to keep some struggling home owners in their homes. The program is not open to everyone - it will be extended to certain bank customers. But for those individuals and families that get the invitation, what it means is BoA essentially waves its magic wand and...POOF! Some portion of your mortgage debt just disappears forever. BoA could choose to reduce a $200,000 note to $150,000 - $50,000 in debt forgiveness just like that.
BUT....as with anything, the devil is in the details. And I'm not sure how reducing someone's principal balance matters if someone in the household has lost a job or had a serious pay reduction, which is now what's driving the record number of foreclosures, IMHO. Yes, your monthly payments would be lower, but if a household went from making $100,000 in income a year to $50,000, knocking a few hundred dollars off a monthly mortgage payment doesn't matter.
What I don't understand is why the banks don't have loan FORBEARANCE programs, like some other forms of lending do. For example, you can request a forbearance on certain federally insured student loans. I did it last year for my law school loans. The process is simple and painless - talk to someone on the phone, submit a few forms explaining the circumstances that justify the forbearance (hello, 40% reduction in income!), and presto, chango! You get anywhere from 6 months to a year of forbearance, to not pay the loans. Now, the loan balance is still accruing interest, and that all gets tacked on to the principal amount due, but you, the borrower, get a bit of breathing room if your income situation is expected to be temporary.
Why can't banks and other lenders do the same thing with mortgages, in appropriate cases?
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