Bank Of America Increases Foreclosure Prevention Efforts

Bank of America Corporation (NYSE: BAC), the country's largest mortgage lender, announced on Tuesday that it would be the first lender to agree to lower or eliminate payments on second mortgages.

The Second Lien Modification Program is a federal initiative that pays incentives to second mortgage holders to work closely with first mortgage holders under the Home Affordable Modification Program (HAMP).

First mortgage holders have resisted lowering payments when there was a second lien involved because they don't want to take on losses while leaving payments on the second mortgages intact.

Not having an agreement with second lien holders "has been a major impediment to getting successful modifications done," said John Taylor, CEO of the National Community Reinvestment Coalition, a group whose members include foreclosure prevention counselors.

Without altering the terms of second mortgages, first mortgage holders often must lower their payments even more to reach the HAMP target that requires borrowers' total mortgage payments represent no more than 31% of their pre-tax income.

"For many homeowners facing severe financial difficulty, decreasing the payment on the first mortgage without a reduction in the payment on the second lien may not produce an affordable combined mortgage payment," said Barbara Desoer, president of Bank of America Home Loans.

HAMP has seen disappointing results because of such obstacles. It was hoped to help as many as 4 million borrowers obtain mortgage workouts, but it had produced fewer than 70,000 permanent modifications as of December 31. Another 800,000 or so homeowners were in a trial-modification phase.