(MoneyWatch) As required under a $25 billion foreclosure agreement struck with the U.S. government earlier this year, Bank of America (BAC) has started reaching out to customers who may be eligible for mortgage relief.
The financial giant, the country's largest mortgage lender, this week is contacting by mail the first of 200,000 borrowers who may qualify for assistance. The bank expects to complete the offers by the third quarter of this year. The January deal between five of the nation's five biggest lenders and federal and state legal officials ensured that some homeowners who are "underwater" on their loans could see their loan principal reduced by an average of $20,000. B of A expects borrowers who qualify for the program to save an average of 30 percent on mortgage payments.
"Building on home-retention and payment-assistance programs already in place, we are meeting our obligation to deliver this additional relief to our customers following the completion of the recent global mortgage settlement," Ron Sturzenegger, a legacy asset servicing executive with B of A, said in a statement. "To the extent principal reduction and other modification tools help us turn mortgages headed for possible foreclosure into long-term performing loans, it will be positive for homeowners, mortgage investors, and communities."
B of A began offering principal reduction to borrowers under the settlement guidelines in March, according to company. The bank initially concentrated on homeowners with mortgages already under review for modification. Under this initiative, roughly 5,000 trial modification offers have been mailed, potentially adding up to more than $700 million in forgiven principal, B of A said.
Homeowners must make at least three timely payments before a modification can become permanent under B of A's offer. To be eligible for the program, homeowners must:
Owe more on their mortgage than the home is currently home
- Be late on their mortgage payments; as of January 31, the borrower must have been at least 60 days behind on their loans
Have a contractual monthly payment for principal, interest, property taxes, hazard insurance, and any applicable homeowner association fees that total more than 25 percent of gross household income
- Have a loan that is owned and serviced by B of A or serviced for another investor that has given the bank authority to modify home loans
The foreclosure settlement requires lenders to provide affordable payments to qualified underwater homeowners. To help borrowers reach their target payment, B of A says it will first reduce the principal balance for eligible borrowers to as low as 100 percent of a property's current value. The bank will also lower the interest rate and forebear additional principal, as necessary.
The foreclosure settlement requires the five participating lenders, which along with B of A include Ally Financial, Citigroup (C), JPMorgan Chase (JPM), and Wells Fargo (WFC) -- to determine that a loan modification doesn't exceed the expected loss if they foreclose on the property instead.
For more information about the government's foreclosure pact, go to NationalMortgageSettlement.com. If you're a homeowner and have questions about whether you qualify for a loan modification or refinancing under the Home Affordable Refinance Program (also known as HARP 2.0), contact the Homeowner's HOPE hotline at 1-888-995-HOPE or go to MakingHomeAffordable.gov.