Bank of America to Reduce Mortgage Principal for Some Borrowers
Amid increasing government pressure to stem foreclosures, Bank of America Corp. said Wednesday that it would offer to erase as much as $3 billion in principal owed by thousands of severely delinquent borrowers who owe more than their homes are worth.
The bank’s plan is by far the most ambitious and systematic effort by a major lender to help homeowners avoid foreclosures while continuing to make loan payments. Unlike previous initiatives, this one will be geared toward borrowers who are so far underwater that they are unlikely to be helped by a government housing relief plan.
If successful, the plan could become a model for other lenders, experts say, and could also help the still-fragile housing market from being walloped by a new wave of foreclosures.
“I think this is a strong signal to the industry about the importance of principal reduction in a loan modification program,” said Paul Leonard, California director of the Center for Responsible Lending, an advocacy group.
Bank of America’s offer would knock as much as 30% off the principal on about 45,000 adjustable-rate mortgages nationwide. BofA didn’t provide a state-by-state breakdown, but spokesman Rick Simon said the largest block would be in California.
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