Bank of America Makes a Bold Move – Principal Forgiveness

Today, Bank of America announced that it will introduce “principal forgiveness” which will look to reduce loan balances of qualifying distressed homeowners with adjustable rate mortgages or subprime loans in an effort to make their payments more affordable.

While smaller banks have already began taking this position, B of A is one of the first large banks to attempt this highly criticized loan modification option.

The Obama administration has been pushing to improve their Home Affordability Modification Program, but rather than push for principal reduction, HAMP was simply extended.  This program has been gaining momentum in the past 4 months.

With more homeowners becoming distressed and considering their limited options, banks currently offer a lengthened term or a change in interest rates, but this move to reduce principal is quite bold. Given B of A’s recent performance, we have to wonder if this is a PR move or if this might actually impact B of A loan holders?

With HAFA ( Improving short sales.) going into effect in less than 2 weeks, it seems that B of A is gearing up to be one of the better banks to work with, instead of one of the worst – which they have been, up to now.