B of A Trading Modifications for Lawsuits
Relaxed modification rules are one way to ensure you stay in your home at a price you will be able to afford.
Bank of America is reportedly negotiating with both federal and state governments over limiting the legal liability it took on when it purchased Countrywide in 2008. When Bank of America bought Countrywide, it stepped right into the middle of the subprime mortgage mess and also the foreclosure document mill scandal. Now B of A is facing lawsuits from investors and federal and state governments.
B of A wants to reduce the amount it will have to payout to settle the consumer claims with the 50 states by offering loan modifications on a large scale. The proposal is gaining traction with some of the attorney generals, but both sides are concerned that a potential deal will create a moral hazard by encouraging people to put themselves into a worse financial position than they currently are.
If B of A settles, it will be able to put some of the legal liability it inherited when it bought Countrywide behind it and move on. By doing modifications, the Bank can also lessen such costs because the Bank will be able to settle the lawsuit for less money.
If the modification idea does make it into a settlement, it could open the door to relaxed rules and maybe even principal reductions, something almost unheard of in the current climate.
Bank of America also doesn’t want a protracted fight with the government such a fight will turn out to be a PR nightmare. It is in B of A’s interest to get the entire crisis wrapped up and over with.
What does this mean for the homeowner?
The idea also benefits homeowners as well. It is good to see that someone in government is finally fighting for the little guy. The relaxed modification rules can ensure that you stay in your home at a price you will be able to afford. Above all, they can help you avoid defaults and the threat of deficiency judgments.
Oppenheim Law is cautiously optimistic. Banks want to limit the amount that they will have to pay out and are willing to throw red meat to the 50 State Attorney Generals. That could be very good news for you, the underwater homeowner.