More than 200,000 letters from Bank of America will begin landing in homeowners mailboxes this week, the bank said Tuesday, offering principal reduction as part of the $25 billion mortgage settlement announced in February.
Its one of the banks first steps in the blockbuster agreement between state attorneys general, federal agencies and the nations five largest mortgage servicers.
Bank of America says the average savings will be about 30 percent of the homeowners monthly payment.
Homeowners meeting the following criteria are eligible:
• Owe more than the property is worth.
• Were at least 60 days behind on payments as of Jan. 31.
• Make a monthly payment of at least 25 percent of gross household income.
• Have a loan owned and serviced by Bank of America, or serviced by Bank of America and owned by an investor who has given the bank permission to reduce principal. Fannie Mae, Freddie Mac and the FHA/VA have not.
The bank announced the outline of this program in March, and its guidelines are spelled out in the consent order approved by a federal judge last month.
Bank of America will reduce principal to as low as the current value of the property, and will lower the interest rate and extend the duration of the loan as needed to get to the target monthly payment.
Homeowners must make three payments under the terms of the loan modification before it becomes permanent.
Bank of America said Tuesday that it tested the program beginning in March, mailing out 5,000 offers and reducing about $700 million in principal.
The program is the first step in a settlement that will be in effect for three years.
The bank will be responsible for a total of $11.8 billion as part of the settlement. Bank of America will also spend money to provide refinancing for underwater homeowners current on payments and to provide other types of foreclosure avoidance.