BofA Wakes Up To Realities Of Offering Sustainable, Good Faith Loan Mods; Acknowledges That "Free Rent" Option Is Huge Incentive For Many Homeowners

CNBC's Reality Check blog reports:

• [Recently] executives at Bank of America rolled out their new "Principal Reduction Enhancement" program, which is an earned principal forgiveness plan for borrowers behind on their mortgages and whose loans are at least 20 percent underwater in value.

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• Why are they getting more aggressive on modifications? Because more borrowers are walking away. Yes, I know we've talked about this forever on this blog and on CNBC, and the New York Times did a piece [] on it, and 60 Minutes did a piece on it a few weeks ago.(1) The fact of the matter is it's getting worse, and B of A execs are acknowledging that openly.

• On the conference call to announce the program this morning, BofA's credit loss mitigation executive, Jack Schakett, said the amount of strategic defaulters (those who can pay their loans but opt not to) are "more than we have ever experienced before." He went on to say, "there is a huge incentive for customers to walk away because getting free rent and waiting out foreclosure can be very appealing to customers."(2)

For the story, see BofA: Mortgage Walkaways Have Huge Incentive.

In a related story, see The Huffington Post: Bank Of America Executive Acknowledges Poor Service In Mortgage Mod Program.

(1) For the CBS' 60 Minutes' piece, see Mortgages: Walking Away (or for the 60 Minutes' transcript, see Strategic Default: Walking Away from Mortgages (60 Minutes: A Million Have Walked Away; Trend Could Undermine the Fragile Economic Recovery).

(2) Especially if the lenders and the sloppy (and allegedly sometimes-fraudulent) paperwork-producing foreclosure mills can't establish that they have legal standing to carry out the foreclosure process.