Consumers are set to receive $7 billion in "relief" from Bank of America Corp. BAC -0.53% as part of the lender's record settlement with government agencies. That is more than the combined relief awarded in similar settlements reached by J.P. Morgan ChaseJPM +1.91% & Co. and Citigroup Inc. C -0.27%.
The relief to be provided by Bank of America includes reductions in mortgage principal and monthly payments for consumers struggling to hold onto their homes, funds to take over and tear down derelict housing and assistance for building or refurbishing affordable rental properties.
But the Bank of America deal also shows a move by the government to respond to criticisms of their past deals, specifically that they weren't focused enough on problems lingering from the recession for low-income borrowers.
Eric T. Schneiderman, New York state's attorney general, said in an interview that under Thursday's deal, low-income and minority homeowners will receive a far larger portion of the benefits than in previous government settlements.
"What you are seeing in each settlement is an attempt to make it a little better," said Ira Rheingold, executive director of National Association of Consumer Advocates, a nonprofit community-advocacy group.
Consumer advocates had been critical of homeowner relief in past settlements because the assistance was seen as too unfocused. Too little of the relief had been aimed specifically at the homeowners who needed the help the most and too much was targeted toward giving incentives to actions that homeowners were likely to do anyway, like unloading properties through short sales, Mr. Rheingold said.
In the Bank of America settlement, Mr. Rheingold said, millions of dollars will be available to help take over houses long abandoned and either refurbish or raze them. That can help preserve the value of surrounding homes.
Depending on their circumstances, consumers may be able to get relief through Bank of America's existing programs, though others may need to wait for the bank to implement the new settlement terms.
The bank said the new relief program won't be fully operating until sometime in the fourth quarter.
For the first time, there will be incentives for a bank to offer reductions in the balance or mortgages insured by the Federal Housing Administration, which are often in low-income and minority communities. The settlement provides $1.75 of credit against the consumer-relief total for every $1 the bank forgives for FHA-backed loans.
Bank of America also will provide funds for the improvement or development of affordable rental housing for people with low incomes.
Additionally, the bank may pay up to $490 million to cover taxes distressed homeowners may owe when some of their mortgage debt is forgiven, according to the terms of the settlement. However, that portion of the payment may not be necessary if Congress decides to extend the Mortgage Forgiveness Debt Relief Act, which expired at the end of last year.
The latest settlement differs from its predecessors in another way: To get credit toward the penalty in its settlement, Citigroup has to reduce a loan balance enough so a homeowner doesn't still owe more than the house currently is worth.
But the Bank of America settlement takes it one step further—stating that after the loans are modified, homeowners need to owe no more than 75% of the property's current value, a step consumer advocates say makes sliding back into default less likely.
"They are giving the homeowner actual equity in the property instead of just bringing them above water," said Andrew Jakabovics, a senior director at Enterprise Community Partners, which has studied the settlements extensively.
In coming months, the bank will be responsible for scouring its mortgage portfolios, identifying eligible homeowners and contacting them for relief. Meanwhile, eligible homeowners also can call a number the bank set up under previous government settlements: 877-488-7814.
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