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BofA says it will offer principle reductions to some underwater loans, P. 2

In the last post, this blog opened a discussion of underwater mortgages and potential write downs in the principle balance that Bank of America says that it plans to pursue. The new BofA policy is related to the recent settlement between the government and some of the nation's largest mortgage lenders that came in the wake of the housing market collapse that was tied to lending and foreclosure practices.

BofA says that beginning next month the bank will begin contacting roughly 200,000 homeowners who may qualify for a principle reduction in their home loan. The bank says that the average reduction could be more than $100,000 for underwater loans.

The bank says it will be more aggressive than it is required to be under the recent foreclosure abuse settlement. BofA agreed to provide at least $7.6 billion in value to the market by reducing loan balances and allowing more short sales. The lender further agreed to provide $1 billion in refinancing relief across the country to homeowners.

The bank plans to aggressively pursue underwater mortgages, hoping to reduce penalties under the settlement. The principle reduction relief will only be available to certain underwater homeowners who were at least 60 days delinquent on a BofA owned, or serviced, loan as of Jan. 31, 2012. The bank set that date to ensure borrowers do not stop current payments in hopes of a future write down.

The bank says it will not generally guarantee specific relief in individual loans. BofA will make its decisions based upon an analysis that compares the cost of foreclosure to the cost of a loan modification.

The bank says it is modifying its procedures, however, by moving principle reductions on underwater mortgage loans to the top of the list. Historically, principle reductions were at the bottom of the list.

Loans backed by the federal government, which comprise 60 percent of BofA loans are not eligible for principle reductions. Federally backed loans include those backed by Freddie Mac, Fannie Mae, the VA and FHA backed loans.

Source: Boston Herald, "Bank of America to cut principal on some mortgages," E. Scott Reckard and Jim Puzzanghera, March 10, 2012

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