By Kara JohnsonProvided by
Some underwater borrowers could see their mortgage balances reduced by an average of $100,000, thanks to an agreement reportedly reached between Bank of America and government officials.
The new deal would reportedly build on the recent $26 settlement reached between state and federal officials and the nation's largest banks over improper foreclosure practices, including Bank of America. According to the Wall Street Journal, which first reported the deal, the arrangement would allow Bank of America to reduce the penalties it owed under the settlement in return for giving bigger breaks to underwater borrowers.
The deal is reported to be exclusively with Bank of America and not with the other four banks that were parties to the $26 billion settlement.
The original settlement was expected to provide certain homeowners with an average of $20,000 in principal reductions as part of restructuring their mortgages to make them more affordable. That deal was to be available only to borrowers who were behind on their mortgage payments and owed more than their homes were worth, along with meeting other conditions.
The new side agreement would appear to greatly increase that benefit. Rather than reducing an underwater borrower's mortgage balance to 120 percent of their home value, under the new arrangement Bank of America would completely eliminate the borrower's deficit for qualified homeowners.
Under the terms of the original settlement, Bank of America was obligated to offer $7.6 billion in principal reductions and other borrower assistance; a bank spokesman said the amount that will increase under the new arrangement will depend on how many borrowers participate.
Just like the original settlement, principal reductions under the new side deal will not be available to borrowers with mortgages backed by Fannie Mae or Freddie Mac because their parent agency, the Federal Housing Finance Agency, is not a participant in the larger settlement.
The side deal would reportedly allow Bank of America to avoid paying some $350 million in penalties under the settlement and avoid potential liability for $500 million more if it failed to meet certain goals in the next three years. While it appears the deal would save money for Bank of America, the cost of the agreement may be borne by the investors holding the mortgage notes that would be written down., according to the Journal.
It appears that many of the principal reductions will be on mortgages that were originated by the defunct lender Countrywide Financial Corp., whose assets and certain liabilities Bank of America obtained in 2008.
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View the original story here: http://www.mortgageloan.com/bofa-may-trim-mortgage-debt-some-9030