BofA Starts More Mortgage Forgiveness Efforts, Sort Of (BAC)

Bank of America Corporation (NYSE: BAC) may be trying to move further and further past its mortgage exposure, but its Home Loans division is reaching out to customers who may be eligible for forgiveness of a portion of the principal balance.  The new pertains to customer mortgages under terms of a recent settlement among five major banks, 49 state attorneys general and the federal government.

The forgiveness will of course not apply to all mortgages but the letters are targeted at over 200,000 ‘potential candidates’ and these letters should start arriving in the mail this week.  Just be advised that the report also shows that most of the letters will be mailed by the third quarter of this year.

The bank estimates average monthly savings of 30 percent on mortgage payments of customers who qualify for this program. Today’s news also shows that Bank of America actually began making principal reduction offers under the program guidelines in back in March.  This effort was targeted at homeowners who were already in the modification review process and about 5,000 trial modification offers have been mailed so far with a potential savings of supposedly $700 million.

Another key is that homeowners are required to make at least three timely payments before the modification can become permanent.  Here are some of the criteria: the mortgage is more than the property is worth today; was 60 days or more behind on payments on January 31, 2012; has a contractual monthly payment (principal, interest, property taxes, hazard insurance, and association fees) totaling more than 25% of gross household income; and has a loan that is owned and serviced by Bank of America (or serviced for another investor that has given the bank delegated authority to do such modifications).

What investors and Joe Public need to take away here is that these letters will not make everyone eligible. Some of the criteria may also be ‘just outside’ of what would helped many borrowers.  It doesn’t look there are any free lunch tickets here and they are not all going to be coming out at once.

JON C. OGG