Could this be a step in the right direction….

Bank of America announced a new program that will forgive up to 30% of the principal for those owing more than 120% of the value of their home. The program is slated to start this May is in response to a settlement reached with the commonwealth of Massachusetts regarding the type of loan modifications Bank of America could make on their Countrywide portfolio. And it may be a preemptive move to the Washington State suit that Bank of America is not doing enough to modify underwater loans.


While principal reduction has been practiced sparingly on a case to case basis by other large lenders, the Bank of America program will be more wide spread, yet focused to one group of its client base. Applying to only borrowers who have loans generated by Countrywide Financial will be eligible. Of those borrowers only the riskiest loans will be considered. You know the breed; option adjustable-rate, subprime and prime loans with a low initial fixed rate then annual increases. Bank representatives say there are approximately 45,000 loans in the portfolio that qualify. The average reduction will be in the $62,000 range.

Other qualifications are similar to those for a standard loan modification, you also must have missed at least two consecutive payments and be able to demonstrate that you are in financial hardship. Ones loan must have a balance of 120% of the estimated home value.

Once you qualify the program will reduce the principal balance and place the determined amount in an interest free account. For every five year period that you make your payments the bank will forgive a little more of the principal balance until the balance has reached the 100% loan to value ratio. To protect Bank of Americas interests should the homes price recover in the fourth or fifth year to the loan balance the forgiveness to the interest free account would stop and would have to be paid off when the home is sold or the home is refinanced.

Now before you run out and call your Bank of America representative you should know that it will be Bank of America that will reach out to you should you qualify for this program. While this is not ideal it could be a step in the right direction in providing relief that makes sense.