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B of A offers to slash mortgage principal

Eligible homeowners could get $150,000 on average knocked off the balance of their mortgages.

By MSN Money Partner May 8, 2012 3:33PM

This post comes from Diana Olick at partner site CNBC.


CNBC on MSN MoneyA select group of struggling mortgage borrowers is about to get an offer that sounds too good to be true. Executives at Bank of America say that 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. (Post continues below video.)

But the offer is real, and eligible borrowers could get an average of $150,000 knocked off the balance of their mortgages. It is all part of the $26 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.


Image: Stairs leading to craftsman house (© Siri Stafford/Lifesize/Getty Images)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 be serviced by Bank of America for an investor who is allowing the modifications.


In order to qualify for the modification, the borrower must answer the letter with full documentation of income, showing that under the terms of the modification he can make the monthly payment. A borrower with no income would, therefore, not qualify. A borrower's current monthly payment must be more than 25% of gross income, and the borrower must show he is unable to afford that.


"If you can afford to make your monthly payment and are choosing not to, you will not get this principal modification," says Sturzenegger.


If the borrower qualifies, Bank of America will bring the monthly mortgage payment down to 25% of the borrower's gross income. That could mean principal forgiveness of more than $100,000, as there is no limit to the amount of the mortgage. If enough borrowers respond, it could cost Bank of America far more than it committed to in the settlement.


"Yes, we have the capability to go well beyond the $11 billion," adds Sturzenegger.


Bank executives say that before choosing which borrowers will get the offer, they performed a net present value test on each loan, making sure that the principal reduction modification would net Bank of America or the investor who owns the loan more than foreclosing on the home would. "It has to be fair to the investor as well," says Sturzenegger.


Not all of the 200,000 borrowers who receive the letters are expected to respond. Executives say there is a level of fatigue among delinquent borrowers who have already received several notices or who may have gone through a failed modification process already. Some borrowers simply don't want to stay in their homes, while others may think the offer is a scam.


"They have been contacted by a lot of other people, and this offer may appear too good to be true," says Sturzenegger.


That's why Bank of America is sending the letters by certified mail and trying to make the language as simple as possible. A sample letter obtained by CNBC shows a red box in the top corner labeled "IMPORTANT" and simple language stating, "Qualifying customers may reduce their monthly payment by an average of 35 percent."

Some 6,500 letters should be arriving in mailboxes across the country this week, with a wave of new letters going out every week until the end of the summer, when all 200,000 should have been mailed. Bank of America is staggering the mailings in order to better handle the expected response.


The bank has staffed up to handle the task, with 50,000 employees manning servicing desks, but the process will clearly take some time. That's why Bank of America has suspended any foreclosure actions against these 200,000 borrowers until the process is complete.


There are currently 5.59 million U.S. loans that are either delinquent or in the foreclosure process, according to Lender Processing Services. Bank of America services about a million of those loans, but many of them are owned by Fannie Mae and Freddie Mac. Their regulator, Edward DeMarco of the Federal Housing Finance Agency, has yet to agree to principal reduction in loan modifications, despite harsh criticism from some lawmakers on Capitol Hill and increasing pressure from the White House.


More from CNBC and MSN Money:

May 9, 2012 5:06PM
my mortgage is 52000 so i guess i'm done paying
May 9, 2012 4:59PM
Totally unfair to those who were already victimized and foreclosed on without due process and would have been eligible had the bank worked it they took the houses sold them for way less than the reduction...guess the bailout money BofA took makes up the difference....what a mistake
May 9, 2012 4:33PM
This is BS!!!!!!!  What about the 90% of us who pay on time, didn't refinance to buy toys we knew we couldn't afford or bought homes way out of our budget just because someone would write the loan?  It just doesn't pay to play by the rules in this country!!!!!!!!! 
May 9, 2012 4:20PM
Why doesn't B of A reward those of us who live within our means and buy homes we can afford?  My husband and I were  "approved" for a more expensive home, and chose to buy a home we could afford with only one income in the event something unfortunate happen.  Needless to say the remaining balance on our home is approx. $146,00.00.  So if we had been one of those couples that went all out and bought something twice as expensive, we'd be getting $150,000.00 knocked off our mortgage as a reward for spending irresponsibly...
May 9, 2012 3:44PM
Hopefully Wells Fargo will follow suit so I can stay in my home.
May 9, 2012 3:39PM

sent to my brother, a BofA employee-


so if I understand it:

BofA et al robostamp foreclosures left and right, leading to smashed

credit/lost homes all over the US

BofA et al receive penalty

BofA et al target people who bought a house they can't afford and 'give'

them money via reducing total mortgage (personal issue stories notwithstanding)


People who handled their finances, are capable of, and have continued to pay

for their home get nothing and will ultimately end up footing the bill via

increased bank charges, interest rates, etc.

People who lost their home receive nothing and continue to ride out their

bad credit rating for the next 7+ years


... and yet, somehow, I don't feel like the terms of this agreement are

quite sensible...


May 9, 2012 3:09PM
Bad behavior is exactly what this is and I disagree completely with principal reduction.  Another gift from liberals for liberals..
May 9, 2012 3:02PM
My wife and I bought townhouse in 2007 and 5 years later our value of our home is underwater of 90,000-100,000. Our investment in the home is lost, no profit while BOA makes an profit off us. We asked for refinance last month, and we still wait for an answer if accept or not. I am scared after I read all the comments. If not accept, then I wonder whether to make a choice to miss a payment. I know that will hurt my credit, but come on, man. Should we rate credit on BOA, too?
May 9, 2012 2:57PM
what about the people who have not thrown the towel in. I geuss no good grace there.
May 9, 2012 2:52PM
And you proved my point my dont judge until you know the person's situation. I'm out.
May 9, 2012 2:50PM
This Country was lost the day Washington started rewarding bad behavior. How do children turnout that are raised that way? 
May 9, 2012 2:49PM
There is a positive! And that is i still have my family and thats all I need right now. God bless my wife for working her butt off for us and trying to keep up. Now i'm back to work and it's my turn to repay her back and give her a break for awhile and know we will be all right in the long run. Thank you and now I have to get ready for work.
May 9, 2012 2:42PM
I know I'm coming across as a hardass Trav but I do feel bad for the ones like you.  I know that you're the ones they should be helping instead of the other 99% (like my friend who just stopped paying his mortgage).  And I do feel bad for your situation but most of them over-extended and are very poor with money and choices.  Maybe a positive will come out of it somehow...
May 9, 2012 2:39PM
If all mortgage assistance programs required that the home be a primary residence and currently occupied - that would screen out most of the speculation leeches that are trying to get bailed out.
May 9, 2012 2:31PM
Where is the help for us poor fools who pay on time every month???
May 9, 2012 2:27PM
No! Thats not what I want to hear. I don't want them to lower my mortgage. I want them to help me stay in my home and pay them every penny I owe them. Just cant give them all of it right now. I bought the home because I could afford it at the time. now I'm asking them for a little help amd wait for us to get back on our feet and to stand by us in a time of need. I will get back to the point where I can catch up and be current and they wont even do that. Don't want them to lower anything. Period!
May 9, 2012 2:13PM
yes...I have lived on less than a 1/4 of that for myself.  And if I had to now, my family of 4 could.  Yes.  Without question.  There are families living on less than that all over (keep in mind you are saying that's not including your mortgate/rent).  If you couldn't then you weren't trying.  But, I guess in your case there was absolutely nothing you could do about your situation and you couldn't have moved and couldn't have sold anything and couldn't have done anything else and had to stay in that home, had to eat the same food, have the same lifestyle, etc.  So, in your case, I guess I don't mind if you got bailed out.  Is that what you want to hear?  Now about the other 99.999% of people...
May 9, 2012 2:05PM
Really? You could live on 700.00 a month? That 3000.00 was worker's comp and wife getting what job she could at the time. Mortgage was $2300.00 so had 700.00 a month to live on with a family of 4. you tell me where you could get power, N gas, water, insurance, food, gas for automobile, laundry soap, personal hygene stuff and car maintainance and what ever else comes up.  I want to move there!!!!!!
May 9, 2012 1:54PM

Trav, like I said I'm sorry you got hurt...if insurance and worker's comp don't cover it, then I'm sorry but while that was going on, you had time to move into a more reasonable living space until such time you could afford it.  If your mortgage company wanted to give you a break on payments for a while, good for them.  If not, I would ask you the same were you going to pay your bills?  Or WHO was going to pay them?


In GENERAL, not everybody is talking about your situation or injuries.  99% of the time, people just overextended and/or just stopped paying because they knew the banks could do nothing.  Or are just bad with money.  And BTW, if I had to, I could live on $700 a month...ANYONE can.  You might be eating some crappy food and not going anywhere for a while but that's your choice if you can't.

May 9, 2012 1:46PM
Yes i did. I was more less responding to Sally's post, Sorry. But when I hear people say if you cant afford it then you deserve to lose it thats BS. You have to know the person's situation first. Got hurt on the job, could not work. So tell me please I want to know. How was I to pay my bills? I could afford it before the injury. No one knows that  they will get hurt.  I did have a savings account and I used all of it when I got hurt but that ran out. Now what? How to pay the bills was the question, well simple answer. I couldn't!
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