If you have a mortgage with Bank of America, and you’re extremely underwater, you just might be in luck. Bank of America has announced plans to extend about $3 billion in loan forgiveness to 45,000 homeowners who are in dire straits. This is an enhancement to its National Homeownership Retention Program, which was launched in 2008 to help borrowers stay in their homes by offering loan modification. The news couldn’t come at a better time. About one in four homeowners in the United States was underwater on their mortgage at the end of 2009, according to real estate information company First American CoreLogic.
Under the principal forgiveness plan, Bank of America will provide earned principal forgiveness of up to 30% to homeowners who owe more than 120% of their home’s value and are 60 or more days behind on payments. Borrowers who meet the eligibility requirements of their National Homeownership Retention Program as well as the Making Home Affordable loan modification program will be able to take advantage of this plan. The bank says it is offering the principal forgiveness as a way to encourage burdened borrowers to participate in loan modification programs.
Bank of America’s plan will begin this May. However, those with 30-year fixed loans are not eligible. Bank of America says it aims to assist those borrowers with loans that often exhibit a high rate of missed payments such as the payment-option Adjustable Rate Mortgage. This is an ARM that lets you choose among different payment options each month. For example, one month, you can elect to choose interest-only payments, and another month you can choose limited or minimum payments, which allows you to pay less than the minimum. Consequently, borrowers with these types of loans often end up owing more money.
If you don’t qualify for a loan modification but you’re having difficulty paying your mortgage, you still have some options.
Rent out part of your home. If you have the appropriate space (for example, you have a house with a mother-daughter apartment), take on a tenant and use the rent to help pay your mortgage. Laws vary by state as far as what is an acceptable living space for tenants, so make sure you review the requirements for your state.
Profit from your talents. You might be talented at cooking or fixing computers. Whatever your gift is, turn it into a profit. Start your own side business and make some extra cash.
Get help. If all else fails, seek professional help. The National Foundation for Credit Counseling offers help with basic budgeting and developing a financial plan. Some community colleges also offer free budgeting workshops and seminars.
Sheiresa Ngo is the consumer affairs editor at Black Enterprise.