Bank of America Corp. has announced that it may forgive a part of the mortgage balance for borrowers who are facing foreclosure
The bank, the largest mortgage servicer in the country, said Wednesday that it will forgive up to 30 percent of some customers’ total mortgage balance. The homeowners must have missed at least two months of mortgage payments and owe at least 20 percent more than their home is currently worth.
The plan is the newest provision of an agreement the Charlotte, N.C.-based bank reached 18 months ago with state attorneys general to settle charges over high-risk loans made by Countrywide Financial Corp.
It is not clear how many borrowers may be eligible for the principal reduction program; but Bank of America’s actions may create somewhat of a trend for other banks. Right now the mortgage industry is in a quandary. There is a flood of under-water mortgages and foreclosures that threaten to swamp and drown even some of the most powerful players in the mortgage industry. Many homeowners who are unemployed or swamped with debt are facing foreclosure and others who may otherwise have kept their homes are choosing to walk away because their home is now worth significantly less than the mortgage they owe. Since the foreclosure crisis began, mortgage lenders have resisted the notion of significantly reducing mortgage principal and even have fought mortgage modifications. But now they may have no choice if they don’t want the very foreclosure crisis they created to overwhelm them and send the most fragile of them into corporate bankruptcy.