Beginning in May, Bank of America–the “largest mortgage servicer,” in the U.S, according to The Associated Press, will cut principal owed on certain mortgages for some underwater homeowners. In a bid to turn around mortgage loans on homes that are headed to foreclosure, and instead make the loans start performing once again, Bank of America becomes the first major bank to look first at cutting principal, before interest rate reductions.
The program is a result of a settlement with Massachusetts Attorney General Martha Coakley over “predatory lending practices” in Massachusetts by Countrywide Financial Corporation, which was bought by Bank of America in 2008. The Massachusetts settlement includes a payment of $18 million to homeowners in Massachusetts and a “$4.1 million payment to the Commonwealth,” of which, “up to $2.4 million will be distributed to Massachusetts Countrywide borrowers who have already lost their homes to foreclosure,” according to the attorney general’s March 24 announcement.
Bank of America will trim up to 30% of the principal owed on “certain subprime, Pay-Option and prime two-year hybrid mortgages qualifying for its National Homeownership Retention Program (NHRP),” according to the bank’s announcement on March 24. The Bank’s NHRP has programs in 44 states and Washington D.C.
“The bank estimates that it will be able to offer these enhanced principal reduction solutions to about 45,000 customers who qualify for a HAMP modification, for an estimated $3 billion in total reduced principal offered under this NHRP enhancement.”
The Massachusetts settlement “expands an earlier agreement that Countrywide reached with 43 other state Attorneys General and the District of Columbia in 2008 for loan modification for certain delinquent borrowers and builds on standards set forth in the Home Affordable Modification Program (HAMP) administered by the United States Treasury,” Coakley’s statement added.
“The settlement allows for significant principal forgiveness for delinquent borrowers in HAMP-eligible Pay Option ARMs, 2-year Prime ARMs, and Subprime 2-, 3-, 5-, 7- and 10 -year Hybrid ARMs, who owe more than 120% of their home’s current fair market value on their first mortgages.”