Addvent Funding Wants to Dispell the Myths About Bank of America's New Principal Reduction Program and What it Really Entails

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Bank of America is reportedly 'helping' homeowners by reducing the balances on mortgages owe to them. In reality, the Principal Reduction that is being offered is limited to a very select few who were issued specific loans and are in risk of losing their homes.

Addvent Funding LLC of Tampa Florida has released, as of April 1st, an updated version of their Principal Reduction Program, which unfortunately can be misunderstood as a very similar program to the one Bank of America has made public as of March 24th. There are however, several misconceptions regarding the coverage of BofA's recent announcement of a principal reduction initiative, particularly its relationship to the Home Affordable Modification Program (HAMP). This confusion also extends to the Treasury’s Friday announcement. There are very few companies that actually offer a true way to reduce your principal balance and Addvent Funding is one of a very very small few. Don't be misconstrued by clever wordsmithing from Bank of America's legal department, they are practically being forced to do what they are covering up as a 'new initiative'.

The BofA’s program at issue is a response to an $8.6 billion dollar settlement regarding a very specific set of loans inherited via BofA’s 2008 acquisition of Countrywide, not a meaningful solution to the core issue of negative equity in residential real estate. (1)

This particular missing context is disappointing, but the greatest concern regarding the coverage of this BofA “program" is the conflation with legitimate HAMP initiatives (both existing and in-development) that seek to address the ongoing crisis and provide help to the millions of underwater homeowners. Despite their (apparently successful) spin, the program announced by Bank of America is not such a strategy; it is simply a stipulation from an out-of-court settlement agreement.

Furthermore, the announcement by the Treasury Department is also being widely and inaccurately linked with Bank of America’s press release March 24th. While the Treasury is rightly focusing on solutions aimed to help those in the most dire of circumstances, these initiatives do not address the millions of homeowners that are working hard to make payments on a loan that overvalues their home by up to 50%.

While everyone can hope that the Treasury’s effort to encourage bank reductions in principal loan balances for struggling homeowners is successful, there is evidence to suggest widespread acceptance and implementation of this strategy may be difficult to obtain. (2)

In the case of a homeowner that is both able to make monthly payments and owes significantly more than the home is worth, lenders will consider principal reduction only when acceptance of a principal reduction addresses the primary concerns of the lender – capitalization requirements, liability reduction, and risk aversion.

New “Principal Reduction Programs” (PRP) are emerging that can help homeowners otherwise ignored. Addvent Funding LLC is one example of a new financial organization that assists responsible homeowners facing severe declines in property value through no fault of their own to negotiate significant principal reductions down to current market values.

In the current climate, lenders such as Bank of America are primarily concerned with asset valuation, risk reduction / avoidance, and capitalization requirements. In order for a lender to accept a principal reduction on an asset they own, the terms of the principal reduction have to favorably address these concerns. Addvent Funding LLC and its affiliates understand these motivating factors, and structure meaningful solutions in conjunction with lenders using leverage created through portfolio negotiation. (3)

For further information of Addvent Funding LLC, please contact Mr. Zack Larson.

(1) The lawsuit contends that approximately 45,000 Option ARM loans issued by Countrywide were “predatory” in nature; meaning the lender, broker and/or financial advisor charged with fully disclosing the risks and obligations associated with this type of loan failed to adequately do so, to the detriment of the borrower. Bank of America agreed to an out-of-court settlement of $8.6 billion dollars directed to address this specific group of loans. Bank of America’s principal reduction announcement is a specific condition of that settlement.

See - http://www.law.com/jsp/article.jsp?id=1202446753100

(2) The Treasury Department’s plan does not address certain fundamental aspects of the housing crisis, including the following: For many homeowners, reduction in principal and/or interest rate does not necessarily equate to reduced monthly payments if that homeowner has been making an interest only or “minimum” payment. In this case, the modification may not address the fundamental issue of monthly payment reduction, thus failing to significantly reduce foreclosure risk.

When calculating the 31% debt to income threshold, typically second mortgage payment obligations are not included in the equation. Therefore, the “affordability” of these solutions can be somewhat misleading.

This is the second attempt by the Treasury Department to incentivize the lenders to reduce principal balances for struggling homeowners. Lenders have primarily demonstrated an unwillingness to provide principal reductions that would reduce the loan amount to the current market value of the property. Instead, the principal reduction provides short-term payment relief, but does not “re-equify” the borrower, meaning they still owe more than the property is currently worth. The result is continued stress on the lender’s balance sheet, and the real risk of someone walking away from a mortgage instead of paying more for a home than it is worth, even if they now can afford the payment.

(3) http://addventfunding.com/
Addvent Funding, LLC

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Zack Larson
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