BofA to cut 200K mortgages by $100,000

by 09 Mar 2012

NEW YORK (CNNMoney) -- Bank of America will significantly slash mortgage balances for as many as 200,000 borrowers.

Part of the $26 billion settlement reached between the five major mortgage servicers, the federal government and the attorneys general of 49 states and District of Columbia last month, Bank of America (BAC, Fortune 500) customers who qualify could see their mortgages reduced by an average of $100,000 or more, according bank spokesman Rick Simon.

Those principal reductions are much deeper than the ones originally announced as part of the robo-signing settlement deal.

When the settlement was first announced, the average principal reduction was expected to reduce mortgage balances by an average of about $20,000. Among the five biggest lenders, the reductions are expected to help roughly 1 million homeowners who owe more on their home than it is worth.

The other four major lenders are expected to reduce qualified borrowers' principal to between 115% and 125% of the value of their home. Meanwhile, Bank of America is aiming to reduce the principal all the way down to the current value of the home.

Bank of America's deal applies to the mortgages it owns and some that it services for private investors. Loans backed by government-controlled agencies like Fannie Mae (FNMA, Fortune 500), Freddie Mac (FMCC, Fortune 500) or insured by the Federal Housing Administration are not eligible for the program.

As part of the settlement, the bank also agreed not to pursue foreclosures against any delinquent borrowers who might be eligible for a mortgage modification. It will also reform its foreclosure processing to avoid repeating robo-signing abuses, in which bank employees signed hundreds of documents a day, testifying to statements they had no knowledge of.

The deal is one of a series of government-led initiatives aimed at tackling the foreclosure crisis. The latest effort came on Tuesday when the Obama administration announced a plan to reduce refinancing costs for FHA-insured loans.

Million-dollar foreclosures rise as rich walk away

The U.S. Department of Housing and Urban Development (HUD) advises borrowers who believe they were subjected to foreclosure abuse and may be eligible for a mortgage modification under the settlement to call their servicers and ask for a review of their cases.

HUD said once the agreement was submitted to a court for approval, which was expected to happen on Friday, it would hold a press conference to go over the details.

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