I recently had the opportunity to see one of the Bank of America offer
letters. These are the offer letters being sent out as part of the
foreclosure fraud settlement. While the offer was substantial, I still have misgivings.
The offer forgave the balance of a mortgage. The whole thing. This probably
sounds great. On one hand, it is great. Without knowing more about the
value of the property, releasing a debt in excess of $130,000 is pretty
significant. That is, until you find out that it was a second mortgage
-- one that I would assume was 100% underwater. This may be great for
that specific homeowner, in particular if the released debt brings the
home back to zero or positive equity.
But let's face it. When BofA releases the entire balance of a second
mortgage, it is not really taking a haircut. In fact, it is 99.9% likely
that BofA was never going to see a dime out of that second mortgage. BofA
gets to credit itself a large sum of cash towards its required principal
reductions, but suffers no actual financial harm. If the point of the
foreclosure fraud settlment was to punish, then this doesn't seem
like much of a punishment. It is the equivalent of sending a child to
his room for a time out, but sending the child with a bowl of ice cream
and a Nintendo DS.
Have you seen or received a Bank of America offer letter? Let us know in