Bank of America Offers Principal Reductions to 200,000 Homeowners
By Diana Olick , CNBC Real Estate Reporter
NEW YORK (CNBC) -- A select group of struggling mortgage borrowers are about to get an offer that sounds too good to be true. Executives at Bank of America(BAC) say they will begin mailing 200,000 letters offering certain customers mortgage principal reduction.
"If people get these things and toss them, they won't be eligible," says Ron Sturzenegger, the Bank of America executive charged with providing solutions to borrowers in need of mortgage assistance.
But the offer is real, and eligible borrowers could get as much as $150,000 knocked off the balance of their mortgages. It is all part of the $25 billion settlement reached this year between federal and state agencies and the nation's five largest mortgage servicers over fraudulent foreclosure document processing (so-called "robo-signing").
Bank of America, in a deal with state attorneys general and the U.S. Department of Justice, committed $11 billion to mortgage principal reduction, but executives say they will go beyond that if enough borrowers respond to their offer. Five thousand borrowers have already received a collective $700 million in principal reduction through a pilot program for those already in a modification negotiation. The 200,000 borrowers being targeted now may have already exhausted modification options or may have yet to contact the lender.
Executives say borrowers receiving the letters are eligible, but they still have to prove they qualify. In order to be eligible, a borrower must be 60 days late on the mortgage payment as of Jan. 31, 2012. The borrower has to owe more on the mortgage than the home is currently worth, commonly known as being "underwater" on the mortgage, and the borrower's loan must either be owned by Bank of America or serviced by Bank of America for an investor who is allowing the modifications.