Mortgage Bail out and Zombie Homes - Financial Law | Financial Buzz

Mortgage Bail out and Zombie Homes

Bailout, Bank of America, Customers, PaymentsThe Bank of America (NYSE: BAC) has just been approved for one of the largest bail out packages amounting to over $16 Billion. This has been the result of a long, drawn out negotiation between the Bank and the Justice department. The pay out is expected to be helpful on more than one level. It will make millions of dollars available to borrower as well as cash assistance. For the Bank of America, it can be a way out of its mortgage related worries that began with the take over of Countrywide Financial, a toxic deal that did more damage than good to the bank.

The end-user

For the customers of the bank, who are stuck in payments that they cannot make, this will mean a loosening of the debt noose by way of reduction in the monthly payments and overall mortgage amount. There is also an amount that is expected to be set aside for ‘loan counseling’, which is an important step toward the reduction of predatory lending.

What the settlement is less likely to do is concentrate on the demolition of houses. There are numerous houses that have been sitting empty, awaiting demolition. These empty houses, also known as zombie houses are not only an eyesore, but also a major issue for real estate as these properties are difficult to get rid of. There is also the issue of crime and vandalism that these properties attract.

Cost of demolition

Previous cases similar to the Bank of America bail out like Citibank (NYSE: C) and JP Morgan Chase (NYSE: JPM) have shown that in spite of a lot of property reclaimed and donated back to the community, there was little to no money being put towards demolitions. The only states that had any money set aside for demolitions are the ones where the Attorney Generals were involved in the negotiation process. The size of the settlement in itself is an opportunity for the Bank to make a difference in this case. There are still those who are impoverished and are paying for their mortgages in spite of the state of their properties.

It has been shown that demolition of unused properties is one way to either stabilize or increase the value of surrounding properties. There is an almost $1.4 benefit for every dollar spent on demolition. It doesn’t come cheap though; on average a house demolition can cost up to $15,000. Setting aside funds for demolition can be beneficial for every party involved in the largest settlement in the US, so far.