On Tuesday, Bank of America Corporation (BAC) announced that since January 2008 it has provided mortgage modifications to more than 680,000 homeowners, making it the leader in the sector. This included 79,859 modifications under the U.S. government’s Home Affordable Modification Program (HAMP) till August 2010. Besides, more than 6,00,000 customers who did not qualify for the government-sponsored program received modifications from the company.
However, even for BofA, the number of homeowners coming in for HAMP has been dwindling ever since the new and strict rules were implemented by the U.S. Treasury in April 2010. In August 2010, the company finished 3,600 permanent mortgage modifications under HAMP while the figures were 4,300 in July 2010, 9,000 in June 2010 and 16,000 in May 2010.
Under the HAMP, BofA has been preventing owners from losing their homes and is getting an incentive payout from the government for revising the payment terms that prevent home foreclosures.
However, a lower number of homeowners are qualifying for the new trial modifications. This is mainly due to changes in regulations, which now require the modifying body to get full documentation of the homeowners’ financial conditions and install a proper underwriting process before granting them eligibility for trial modification offers.
Earlier, a homeowner could participate in the HAMP for a three-month trial period before being converted for a permanent loan modification. However, it was seen that the program did not properly scrutinize the financial conditions of the homeowners to find out whether they could repay even under new loan terms.
Accordingly, trial modifications in HAMP declined to 72,000−73,000 at the end of August. According to BofA, this was mainly attributable to conversions to permanent modifications, cancellation of non-qualifying modifications and slower pace of homeowners entering the trial period.
However, for those ineligible under the government-sponsored HAMP, BofA came up with its own alternative. Its home retention program uses streamlined, cooperative short sales and deeds-in-lieu with possible assistance in relocation costs. In the second quarter of 2010, the company was able to complete 25,000 short sales.
Apart from this, in April 2010, BofA started providing home equity loan modifications under the 2nd Lien Modification Program (2MP). This program helps homeowners lower their payments on their second home loans. This development lead to BofA becoming the first major service provider of 2MP, well ahead of the date specified by the government.
Although companies such as Wells Fargo & Co. (WFC), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM), U.S. Bancorp (USB) and Ocwen Financial Corporation (OCN), to name a few, are also engaged in HAMP and other modification programs to prevent foreclosures, BofA is proactively reaching out to its customers to address their loan problems using all possible existing options.
At a time when the pace of economic recovery is slow, BofA is exploring all alternatives to prevent a foreclosure. Though foreclosure prevention does not benefit the company’s financials to a great extent, the company hopes to restore investor and customer confidence through this initiative. However, BofA believes that modification numbers under HAMP will continue to shrink as borrowers drop out of the program and fewer new borrowers qualify. Also, some of these customers are moving into the company’s proprietary modification program.
BofA shares currently retain a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating. However, considering the fundamentals, we are maintaining a long-term ‘Neutral’ recommendation.