Bank of America to lower principal balances - Read Carefully

This program will not help those that have a 30 year fixed mortgage. It is aimed at those that owe 120% of the current market value, and customers with certain adjustable rate and high interest rate mortgages (majority of which seem to be the mortgages that BOFA inherited from Countrywide).

Less than 1 percent of the country's estimated 11.3 million underwater mortgage borrowers are eligible for the program, announced Wednesday, but it could spark other lenders to do likewise, one Arizona State University finance professor said A decision by Bank of America's home loan subsidiary to begin systematically lowering the principal balance on an estimated 45,000 customers' onerous mortgage loans has left some wondering if it's the start of a broader trend.

Still, that doesn't mean Arizona homeowners should wait by the phone for their lender to call with the good news, said Tanya Wheeless, president and CEO of the Arizona Bankers Association.

"The Bank of America program is not going to help everyone, nor is it a program that is likely to be replicated," Wheeless said. "There is no groundswell."

In many cases, the bank servicing a mortgage lacks the authority to lower its principal balance, Wheeless said, because the loan itself is backed by a private investor or another bank.
But more than anything, she said, lowering a past-due borrower's loan principal just doesn't feel right to most lenders.
"It's not something that would be accepted wholesale by the lending industry," she said.
Kaufman said he would not be surprised if the mounting political pressure to help struggling homeowners forced banks out of that comfort zone.
"There is clearly a political gain to be gotten from implementing a program like this," he said.

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