On Wednesday, Bank of America Corporation (BAC) announced that it has the maximum involvement in the U.S. government's Home Affordable Modification Program (HAMP), with more than 76,300 modifications till July 2010. Apart from that, about 100,000 customers who did not qualify for the government sponsored program have received modifications from the company.
Even for BofA, who leads the industry in HAMP, the number of homeowners coming in for the government sponsored program has been dwindling ever since the new strictures were put in place by the U.S. Treasury in April 2010. In July 2010, the company finished 4,300 permanent mortgage modifications under HAMP while the figure was 9,000 in June 2010 and 16,000 in May 2010.
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 active trial modifications. This is mainly due to change in regulatory rule, which now requires the modifying body to get full documentation of the homeowner’s financial condition and 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 less than 85,000 at the end of July. 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 programs, BofA came up with its own alternative. Its home retention program used 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.
Since the beginning of home loan modifications in 2008, BofA has been able to complete more than 665,000 modifications under all programs. This also includes nearly 590,000 modifications using its own solutions.
Apart from this, in April 2010, BofA started providing home equity loan modifications under the Home Affordable second lien program (2MP), thus becoming the first major service provider, well ahead of the date specified by the government.
BofA is also leading the industry in the Home Affordable Refinance Program (HARP), which started in April 2009. Under this program, the company has helped more than 135,000 customers who would have otherwise not been able to get finance in the tight credit market.
Although companies such as Wells Fargo & Company (WFC), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM), USB 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 believed to be proactively reaching out to its customers to address their loan problems through all the possible existing and viable alternatives.
At a time when the pace of economic recovery is slow, BofA is exploring all options to prevent a foreclosure. Though foreclosure prevention does not benefit the company’s financials to a great extent, it hopes to restore investor and customer confidence through this initiative.
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.
