This morning, Reuters has reported that Bank of America has announced a program that will offer what the bank is calling an “earned principal forgiveness” of up to 30 percent for homeowners owing more than 120 percent of the value of their homes.

Bank of America says the plan will be available to homeowners nationwide beginning in May of this year.  It is certainly the first program of its kind to be announced by such a large financial institution in the sense that it takes a “systematic approach to reducing mortgage principal in an effort to tackle the thorny issue of preventing foreclosures when home values drop well below the amount owed”.

Here’s how the program will work, according to the bank:

• Forgiveness of principal will be offered in two stages for the riskiest loans, including sub-prime loans and loans which offered borrowers multiple options for how much to pay each month. 30-year fixed rate loans will NOT be eligible for the program.
• Bank of America will offer qualified homeowners an interest-free forbearance of principal that the homeowner can turn into forgiven principal annually over five years, provided they stay current on their mortgage payments.  Over the five-year period, homeowner can bring their loan values back down to 100 percent of the home’s market value.

According to Barbara Desoer, who is the president of Bank of America Home Loans, said the following:

“At the same time earned principal forgiveness helps homeowners, it also recognizes and addresses the interests of mortgage investors by ensuring that forgiveness is tied to the homeowner’s performance, reducing the probability of a future default under the modified terms, and adjusting the total amount to be forgiven in light of any gains in property values that might occur in an economic recovery.”

I think what that means in reality is that the bank is finally admitting that property values have fallen, well… for good.  No, not forever… but for a long, long time.  Sure, they’re still allowing for the possibility of home price appreciation in the next five years, but they’re hedging their bets just in case that doesn’t happen.

You see, that’s what the phrase “re-default risk,” when used in conjunction with a loan modification, is all about.  Re-default risk isn’t about a homeowner not being able to pay the modified payment in future years, it’s about the homeowner coming to their senses in future years and walking away from an underwater mortgage.

Of course, it’s worth mentioning that Bank of America’s new principal reduction program has not come as a result of the bank simply seeing the light on its own.  The pressure has been mounting and undoubtedly will continue to increase.  U.S. lawmakers and housing advocates continue to be increasingly vocal about the need for principal write-downs in order to stop the housing carnage on a national scale.

According to Reuters:

“Amid stubbornly high unemployment, homeowners are seen as more likely to simply abandon an unaffordable mortgage when they have no equity or are deep ‘underwater’ on the loan.”

Two days ago, Washington state residents filed a lawsuit against Bank of America for reneging on a promise the mega-bank made to modify mortgages when it took $25 billion in taxpayer bailout money.  According to Reuters, the lawsuit alleges that Bank of America has “seriously strung out, delayed and otherwise hindered” loan modifications because it had financial incentives to do so.

And today, Massachusetts Attorney General Martha Coakley obtained a $3 billion settlement from Countrywide/Bank of America that is to provide loan forgiveness to approximately 45,000 Massachusetts homeowners.  And that, is they say, is only the tip of the iceberg, in terms of pressures being brought to bear on Bank of America in addition to numerous other financial institutions.

Will it work?  Will Bank of America’s best laid plans turn out as planned?

I have no idea, and certainly this is not a bank in which my personal confidence in their competence, shall we say, overflows.  In fact, as a good friend of mine said on his first day at work, after accepting a fairly senior level position with Bank of America this past year… in response to my asking how he liked his new job: “There’s no adult supervision and the left hand doesn’t know what the right hand is doing.”

Reuters closed its story announcing the new Bank of America program with the following:

“A $75 billion Obama administration program aimed at helping struggling homeowners avoid foreclosure was sharply criticized on Tuesday by a watchdog, which said the program has been oversold and is likely to be a failure when it wraps up in 2012.”

Likely to be a failure in 2012?  Ya’ think?  These guys should write for Leno.

Massachusetts Attorney General Martha Coakley is hunting for bank. She just bagged Goldman Sachs, among others, and they’re writing down mortgages faster than you can say “fraudulent securitization”. She’s my God damn hero. I think I’m voting for her for president in 2012 whether she runs for the office or not.

Apparently, Martha My Dear decided she’d better do something about the foreclosure crisis in Massachusetts, seeing as no one else was. And so being a woman with a fully developed adult brain, she thought she might take a look at the people who made all the money… the investment banks and their role in the origination and securitization of mortgages.

(I know just how you’re feeling. Exciting isn’t it? Hang on… it gets even better.)

As part of the settlement, Goldman has agreed to principal write-downs so that homeowners in Massachusetts can refinance or sell their homes! (I swear… I am not making this up.)

For homeowners with loans held by Goldman entities, the investment bank… ooops, I’m mean the commercial bank… will reduce the principal of first mortgages by 25-35% and second mortgages by 50% or more!

And borrowers who have a first mortgage that’s seriously delinquent will be required to make a “reasonable monthly loan payment” while trying to refinance… or until they sell their home, which is certainly more than reasonable. And, if after six months, the borrower is still unable to find financing or sell his or her home, Goldman will reduce the principal owed on the existing loan to assist the borrower!

Martha’s office announced that the settlement with Goldman Sachs & Company is worth $50 million and includes substantial principal write-downs and refinancing options for loans owned by Goldman and/or serviced by Litton.

Martha has been investigating the role of investment banks in the origination and securitization of sub-prime loans in Massachusetts. And, in order to resolve any potential claims stemming from the Attorney General’s investigation, Goldman has agreed to provide loan restructuring to Massachusetts sub-prime borrowers. The program is designed to enable borrowers to replace the “problem loans” with affordable ones based on the current value of their properties.

(Holy Mary Mother of God… just when I’d thought I’d seen everything.)

Additionally, Goldman has also agreed to make a $10 million payment to the Commonwealth of Massachusetts, which I thought was darned considerate of them, and has pledged to continue cooperating with Martha in her ongoing investigation of industry practices. This woman muct be scary as can be. You go girl. You’ve got Goldman Sachs sounding like actual human beings!

(Do you hear that President Obama? Secretary Geithner? Is any one in D.C. paying any attention to what this woman has going on in Massachusetts? Yoohoo! Lookie here…)

That’s not even all of it… even if a homeowner’s loan isn’t held by Goldman, but is serviced by Goldman’s affiliated servicing company, Litton Loan Servicing LP, Goldman says they’ll help qualified borrowers find refinancing and other alternatives to foreclosure.

The Massachusetts Attorney General’s Office began investigating the securitization of sub-prime loans in December 2007, and since then has focused on industry practices related to the issuance and securitization of sub-prime loans to Massachusetts consumers. Martha’s looking into whether securitizers may have:

• Facilitated the origination of “unfair” loans under Massachusetts law.
• Failed to ascertain whether loans purchased from originators complied with the originators’ stated underwriting guidelines.
• Failed to take sufficient steps to avoid placing problem loans in securitization pools.
• Been aware of allegedly unfair or problem loans.
• Failed to correct inaccurate information in securitization trustee reports concerning repurchases of loans.
• Failed to make available to potential investors certain information concerning allegedly unfair or problem loans, including information obtained during loan diligence and the pre-securitization process, as well as information concerning their practices in making repurchase claims relating to loans both in and out of securitizations.

Martha’s investigation into securitizers is part of her comprehensive enforcement approach to combating sub-prime lending and the foreclosure crisis. This latest inquiry concerns the role of “Securitizers” (read: Goldman Sachs), who bundled mortgage loans and sold them as mortgage-backed securities or other investment vehicles.

(I can’t wait for Part 2… I hope her next installment covers “The role of Bold Face Liars & Greedy Bastards in the Financial Meltdown.”)

So far, Martha has sued Fremont Investment & Loan, as well as Option One and its parent H&R Block, alleging unfair, deceptive and predatory lending practices. And she’s obtained preliminary injunctions against those companies too!

And the latest polls in Massachusetts show Martha and the Republican, Scott Brown are neck in neck.  People… I don’t care about Republicans or Democrats… but are we seriously considering not electing one of the only people in the country not bought off by the banks?  One of the only people with a track record that might lead to solving the foreclosure crisis?

If you’re in Mass or know anyone there… for God’s sake, pick up the phone.  Tell them not to let this happen.  The country needs Martha NOW.  Put Scott in in a couple years… when he can’t keep the country in a recession by voting with the banks.

He’s running to stop the health care bill.  Who cares about this stupid bill?  Do you really care about health care when you’re living under a bridge?  Stop the depression from taking hold by putting Martha in the Senate.  The health care bill won’t make a damn bit of difference for years… but if we don’t do something fast, 14 million will lose their homes in the next 3 years.

COME ON EVERYBODY LET’S SING!

MARTHA FOR PRESIDENT!

Martha my dear though I spend my days in conversation

Please

Remember me Martha my love

Don’t forget me Martha my dear

The Beatles