B of A in Principal Reduction Deal


Roughly 200,000 troubled mortgagors will have a chance to sharply reduce their loan balances under a side deal negotiated by Bank of America that could allow the bank to avoid as much as $850 million in penalties.

Under the arrangement, part of the recent $25 billion settlement of alleged foreclosure abuses between government officials and five large lenders, B of A will make deeper and broader cuts in balances than other servicers.

According to a report in Dow Jones, the plan will offer qualifying borrowers a chance to cut their mortgage balances to their home’s current market value. Other banks are required under the national settlement to cut principal to no more than 120% of the home’s value.

Borrowers who qualify are expected to receive principal reductions averaging more than $100,000, a B of A spokesman said. The pact’s total value will depend on how many borrowers take up the offer.

The agreement is the latest twist in the government’s long-running effort to break a logjam in the housing market, by pushing lenders to cut loan balances to make it easier for borrowers to stay in their homes.

However, the deal is likely to generate criticism from investors who own securities backed by mortgages that could be affected by the settlement.

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