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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 8, 2012 4:58PM
Wait a minute...I pay my mortgage on time.  My mortgage is under water, but I am not allowed to participate because I am responsible?  This is ridiculous!!  People continue to get paid for bad behavior, but the good guy gets no perks.  There is something wrong with this situation.
May 8, 2012 4:54PM

So, there is no longer an incentive to pay your mortgage anymore, if you want it reduced just quit paying, that sounds smart...What about those that have struggled but still paid everything.


No wonder banks were in this position to begin with...

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 4:40AM

See what happens when you don't pay your bills?

Then you wonder why the country is falling apart.

If you are behind, you get help.

If you are working three jobs and keep up the payments, you don't get ****.

Welcome to America.Smile

May 9, 2012 2:31PM
Where is the help for us poor fools who pay on time every month???
May 8, 2012 5:15PM
Yes, another blow to the on time paying, hard working people who work to pay their bills! Just proves that only in American can you get all the help you want by not paying yours bills and living beyond your means!!
May 9, 2012 9:12AM

Perfect!  I've been working three jobs (yes - THREE) for the last 18 months to stay on top of my debts.  I incurred them, I owe them, and I was raised to pay my debts.

Now I realize just how stupid I really am.  If I ignore my obligations, if I totally give up any sense of moral character, I too can have the home of my dreams and get everyone else to pay for it.


Only in America.

May 8, 2012 5:57PM
This just goes to show that responsible people finish last.  We bought our house in 2005 (right at the peak of all that craziness)  We had to bid for our house, lost the bid, then some how got.  We have NEVER been late, even when my husband's warehouse closed and he was laid off.  He was on unemployment for 4 months, but we made it work.  Why??? Because I was raised with the belief that people should handle the responsibilities they take on.  Now, I owe $199,000 on a house that's only worth $135,000, I have two children with one on the way in a very small 3 bedroom house.  I can afford a bigger mortgage and a bigger house, but there is no way to get out from "under water" without walking away.  What about the bail out for people who still pay their bills?  We aren't any better off than the people who aren't paying.  We still owe more than our house is worth.
May 9, 2012 10:24AM
What about us who have been making the house payments - no matter what the sacrifice!!!!!!!!
May 9, 2012 9:08AM
Nothing like getting breaks for not honoring a contract. Us poor bastards who actually pay our mortgages don't even get a automatic break on interest rates. I guess its better these days to just not pay anything for a while.
May 8, 2012 4:44PM

Once again the banks are creating additional downturns with what claims to be a solution.  It's like the "Cash for Clunkers" all over again but on a larger scale. What’s next, forgive student loans on those who are behind because they chose a degree in an area that is over saturated or does not fit the individuals personality or took out loans irresponsibly. Common on people, this isn't that hard go back to the basic and stop adding to the issue. 

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 7:06AM
I am responsible and play by the rules but my house price has dropped about $1300,000 and I can not get any help with mortgage cost reduction. I put my life savings into this house and have lost everything because the value of my house dropped and I lost all my cash equity and more. I am getting punished by the government and the banks because I pay on time. I guess I should stop paying my mortage and run up my cridit cards and then file for bankrupcy because the government and/or the banks do not want to help me out. That will be the only way I can handle  the cash value loss.   Government help bail out banks and now bad mortgage holders but never the honest responsible people of the U.S. The only thing government has done for me is raise my taxes. Yes. Property taxes are up this year by over 800 and value of house is down 130000 in a little over 3 years.  So they dropped the house value and increased taxing percentages Taxes should have dropped but they did not. Dupped again.
May 8, 2012 5:31PM
So if you did the right thing and kept your mortgage current and put off the dental work, the birthday gifts for the kids, Christmas gifts, and learned to make your own car repairs you are not eligible.  However, if you took that trip to the islands over the winter, bought that new car and gave yourself a iphone and ipad and each of the kids have their own cellphone, you are.  What's wrong with this?
May 8, 2012 5:23PM

I understand about being upset for the people who have already lost there homes.  But what about the people who pay there bill on time.  It doesn't mean they struggle any less.  Again people not seeing the whole picture.  If you do the right thing you get screwed, and are offered no help.  I mean I'd love 150k knocked off my home, but I pay on time and do without other things and get nothing.  I am in the majority here.  People who don't pay get assistance help, and people on welfare forget about it.

May 9, 2012 3:48AM
My wife gets cancer and hasnt been able to work since Sept.  We burn through all our money trying to stay current on our bills, and we don't qualify for this because I didn't quit paying the house bill when our income was cut in half. 
May 8, 2012 9:30PM
So how is this fair to those of us who have kept up on our payments regardless of our financial hardships?
We have sucked it up long enough! I want a dam bailout for being prudent with my finances just like the hucksters that are sucking us dry. Bunch of dam vampires!

May 8, 2012 7:36PM
Since I am a responsible person and always pay my bills I feel I am being taken advantage of by not getting a shot at lowering my mortgage too!!!!!  Excuse the hell out of me for doing the the right thing and not living above my means!!!!! I wish government and banks would take their grimy, greedy hands out of my pockets!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
May 8, 2012 5:54PM

Rewarding bad behavior.....


Punishing good behavior....


Seems to be the "New" American way....


What a shame.

May 8, 2012 8:38PM

I say all of us who are on time but underwater, threaten to walk if BofA doesn't lower our mortgages too!!!  I just don't get the banks logic.....if you are irresponsible, we will knock $150k off your loan, if you are responsible, tough $hit!!!  I would be happy to get $30k knocked off, since that is how far underwater I am.  If I don't qualify, I will seriously consider starting a class action lawsuit against the bank on behalf of all of us who are getting punished for doing what is right, i.e.; paying our bills.  Either reduce principal for everyone, or for no one.  We're all underwater! Absolute bull$hit!

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