B of A Principal Reductions. Bank of America announced plans to begin forgiving mortgage loan principals for homeowners who owe more than 120 percent of their home's value and for homeowners who are experiencing expanding negative amortization loans.
B of A promised to offer such homeowners an earned principal forgiveness of up to 30 percent in two stages. First the lender will offer an interest-free forbearance of principal that homeowners can turn into forgiven principal annually over 5 years, as long as the homeowners stay current on their payments.
The forgiveness program can allow homeowners to bring the loan value back down to 100 percent of the homes value over 5 years.
Regarding negative amortization loans, Bank of America will cut the principal balance on the worst of the high-risk mortgages written during the peak of the housing boom (the payment option adjustable rate mortgages that had a negative amortization feature that allowed the principal balance to grow.)
On those types of loans that are delinquent and are in danger of imminent default, B of A announced that it would cut principals to as low as 95 percent of the property's value.
The plan is to begin in May.
B of A Principal Reductions.