Bank of America to Offer Underwater Homeowners A Mortgage Principal Foregiveness Plan

Bank of America has announced plans to start forgiving mortgage loan principal for troubled homeowners who owe more than 120 percent of their home's value or are battling negative amortization loans.

Bank of America will begin to offer certain mortgage holders a "earned principal forgiveness" program whereby up to 30 percent of their mortgage balance will be foregiven in two stages. Provided the homeowner stays current on their payments over five years, the foregiveness plan is designed to bring the loan value down to 100 percent of the home's value at that time.

I am somewhat torn by news of this plan. 

As a responsible homeowner who purchased a home that they could afford in 2007 (not one three times more expensive and larger than they could not afford even though it would have been possible), I do not think that the plan engenders or rewards financial responsibility; rather it continues the precedent in the US that you can take whatever loan amounts are offered to you and not be responsible for repayment.  At the same time, it is pleasing to see the largest US mortgage lender become the first to take a systematic approach to reducing mortgage principal and to preventing foreclosures, instead of leaving this difficult issue to the government to handle.

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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