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Bank of America Announces Plans to Write Down Principal on Certain Mortgages

April 6, 2010

As San Bernardino County loan modification lawyers, we were extremely pleased to read that a major mortgage lender will reduce principal on certain troubled home loans. The Los Angeles Times reported March 25 that Bank of America announced an ambitious plan to write off principal on about 45,000 adjustable-rate loans nationwide. All of the loans were acquired in the bank's purchase of Countrywide Financial, the now-defunct mortgage lender that was once the king of the subprime market. A spokesman for the bank said the largest block of such loans is in California. The plan is an attempt to head off a lending fraud lawsuit filed by the state of Massachusetts, separately from the multi-state lawsuit that ended in October of 2008.

Bank of America is not simply forgiving a certain amount of principal. Instead, it plans to offer a forbearance program to holders of especially troubled subprime loans, especially option ARM loans, who are at least 120% underwater and 60 days behind on payments. The bank will not suspend payments on part of such loans, lowering the borrower's payment. If the borrowers continue to make their payments on time for five years, the set-aside principal will eventually be forgiven. This is expected to protect investors who bought the mortgages bundled into securities, and who are now fighting loan modifications they perceive as threatening their investments. Experts hailed the program as groundbreaking because it's the first to use principal reductions as a primary tool, and said it could be a model for other lenders if successful.

Our Temecula loan modification attorneys agree, but we note that Bank of America didn't do this for entirely selfless reasons. The program was enacted under pressure from Massachusetts prosecutors, who had sued the bank for allegedly making subprime loans without investigating whether the borrowers had a realistic ability to pay them back. Furthermore, the Wall Street Journal's Deal Journal blog points out that Bank of America won't suffer most of the losses expected from writing down the principal, because most of the loans have been securitized and sold to investors, and the bank has already secured itself against losses from the remaining loans. Under those circumstances, the blog post asked why the bank didn't act earlier. We think that's an excellent question, but we still hope the model is successful enough to be adopted by other lenders.

At Howard Law PC, we have worked with borrowers throughout the housing crisis. Our Santa Ana loan modification lawyers have come to believe that lenders are reluctant to write down principal because they're afraid of losing money. That means that even under circumstances in which they're unlikely to actually lose money, lenders and loan servicers prefer to ignore phone calls and letters, lose paperwork and generally behave in an unprofessional way rather than process a loan modification application. For borrowers, the result is false hope and unnecessary stress and heartache. We represent clients who are tired of being jerked around by banks in this manner. Through aggressive negotiations or litigation, we have been able to help numerous clients get changes to their loans' interest rates, structure or other important features.

Howard Law offers free, confidential consultations, so you risk nothing by speaking to us about your case. To set one up, call us today at 1-800-872-5925 or contact us through our Web site.