The Eclectic One

…Because labels are a poor substitute for thinking

Smart money

Posted by Bill Nance on October 6, 2008

Bank of America makes another very smart move.

The Juice:

Facing a lawsuit over deceptive mortgage practices, a Bank of America Corp. subsidiary has agreed to modify tens of thousands of loans to keep people in 11 states from losing their homes, the Illinois attorney general’s office said Sunday. Borrowers stuck with Countrywide Financial mortgages that they can’t afford could see their interest rates reduced or have the loan principal cut. Some might qualify for having to pay nothing but interest for a decade. Even people who can’t afford to keep their homes with such changes will be able to get help moving to a new home. “This is going to provide a tremendous amount of relief,” said Illinois Attorney General Lisa Madigan.

As I wrote the other day, one of the key parts of being a successful mortgage lender is smart loan servicing.

Contrary to what many people think, banks are not well served by foreclosures. Banks are in the business of lending money, not wheeling and dealing in real estate. The smart lender is always interested in striking a deal to keep people in their homes if it’s at all reasonably possible. This is even more true when borrowers are “upside down” on a mortgage.

With this move, B of A settles a giant lawsuit, is likely to benefit financially (getting paid a little less or a little later is a LOT better than taking massive hits from foreclosures) and heads off some truly punitive measures coming from regulators. Not to mention some very good PR.

Smart lenders are in business for the long haul; and with a long view, B of A will probbly come out of this mess far ahead of many other institutions because of this move. Bravo!

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