Thursday, March 25, 2010

BOA Takes Initiative; Going that "Extra Mile" to help Struggling Homeowners: Will $hiti Follow Suit?

Bank of America program to cut mortgage principal

March 24, 2010 — 2:51pm ET | By Jim Kim

A Bank of America (NYSE: BAC) program that will start in May will allow mortgage holders who are significantly underwater to reduce the principal on their mortgages over five years. Critics of loan modification efforts to date have been calling for such plans, especially for those stuck with negative amortization loans in which principal builds in return for lower monthly payments.

Bank of America's program, according to Reuters, offers "earned principal forgiveness" that calls for the bank to offer an interest-free forbearance of principal that the homeowner can turn into forgiven principal annually over five years, provided they stay current on their payments. Over five years, the loan value can be brought back to the home value if all goes well.

This is an interesting move, one that follows a suit that charges Bank of America has failed in its attempt to modify mortgages so far. The announcement of the new program also follows a report by the TARP watchdog that rips the home loan modification effort so far. We'll have to see how many people are able to access the plan. By the time the program really gets rolling, home values may be moving up a bit.

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