Bank of America announces [small] step into Principal Reduction

by Divina K. Westerfield, Esq. on March 24, 2010

CNBC spoke about Bank of America’s write down of principal on mortgage loans.  BOA will target subprime pay-option ARMs and certain 2 year hybrid ARMS where the loan is worth more than the value of the home.   No 30 year fixed home mortgage loans will be involved.  This announcement was in response to a settlement with the Massachusetts attorney general and will apply in 44 states.  Eligible homeowners must meet the criteria for the government’s home modification program.  Borrowers must:

  • have a principal balance of at least 120% of the value of the home
  • be 60 days or more delinquent
  • earn forgiveness over 5 years up to a maximum of 30% decrease in their principal balance.

Barbara Desoer, President of Bank of American Home Loans and Insurance said,

“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.”

Bank of American has over 1 Million delinquent loans on its books but this Principal Reduction will affect only about 45,000 borrowers.   BOA expects about $3 Billion in reduced principal.

The government’s modification program does not require principal reduction and some say that’s why its not been very successful.

CNBC’s Diana Olick spoke to mortgage industry analyst Howard Glazer who said, “I think we’re going to see the government adopt a program like this and provide more incentives to get the banks on board.”

It appears some of the pressure we and others are putting on Congress and Congress on the Feds and the banks is starting to work.

For more information please see this Press Release by Bank of America

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