Bank of America Launches a Loan Modification Program

Bank of America just launched a pilot program designed to lower the actual principal of mortgages for homeowners whose homes are underwater.  This program is different than the one I described last month where Citibank launched a pilot program to allow homeowners to surrender their homes after six months. The main difference is that this program is meant to keep homeowners in the house while permanently modifying the loan.

Lower Principal by Forgiveness, Over Time

For people who qualify, Bank of America should lower the loan principal to the value of the home or by 30%, whichever is lower.  The decreased principal will be placed into a special interest free account.  Each year, Bank of America will forgive 20% of the decreased principal.

For example, a loan for $250,000.00 on a home worth $200,000.00 means Bank of America will put $50,000.00 into the special account.  Each year, $10,000.00 of the $50,000.00 will be forgiven.

There is a Catch

Bank of America is not just going to forgive the loan.  The owner has to keep up with their payments.  So if the owner could not make the payments then program does not help at all.  This program was designed for the customers of Countrywide (whom Bank of America purchased) who had those funky loans that were interest only or possibly even negative interest.  By making the minimum payment as per the loan terms, the owner could have some principal reduction every year as well.

Also, Bank of America reserves the right to reclaim the reduced principal if the property begins to appreciate.  In the example above, if the $200,000.00 home appreciated in year 5, then the principal reduction may only partial occur or not at all.  This gives Bank of America a chance to recover the money if the house prices rise.

Is This for Me?

This is a pilot program and limited to about $3 billion in principal reduction or about 45,000 homeowners.    Not every homeowner qualifies and the program is only by invitation only.  However, Bank of America may expand this program if it works out well.  So keep looking in the mail if you have a Bank of America Loan.

Eddy Hsu is an attorney experienced in the areas of Bankruptcy and Family Law.  He is admitted to practice in California and the Northern District of California Bankruptcy Court. He may be reached at 415-230-5388, and via email at eddyhsu@ehsulaw.com. The above article is informational only and not legal advice for your specific situation.  Always consult directly with an attorney to obtain legal advice.