Bank of America Announces New Guidelines on Principal Forgiveness

March 25, 2010 - Boston - In an agreement worked out with the Commonwealth of Massachusetts, Bank of America announced today that it will put a greater emphasis on principal forgiveness when negotiating loan modifications with homeowners. The new initiative was announced in press release from Bank of America.

The Massachusetts state government pushed for the changes to encourage greater participation in the Home Affordable Modification Program (HAMP), a loan modification program run by the federal government. Bank of America refers to its program as the Homeownership Retention Program (NHRP). Under these new guidelines, Bank of America will consider forgiving some or all of the principal for homeowners who are facing immediate foreclosure or are "severely underwater" in their mortgage. Being underwater refers to when homeowners owe more on their mortgage than their home is worth.

Previously, Bank of America looked first at reducing interest rates in negotiating loan modification agreements, which -- for some homeowners -- would not result in much of a difference in their monthly mortgage payments. This new emphasis on principal forgiveness may encourage more homeowners to renegotiate their loan under the federal HAMP program. However, these new guidelines will not go into effect until May 2010.  

Under the HAMP loan modification program, banks should reduce payments until they equal 31% of the homeowner's monthly income.