Bank of America customers to get more principal reduced

If you have an underwater mortgage held by Bank of America, you may be able to get a better modification deal.

As a side agreement to the $25 billion settlement among the five big banks, the federal government and the state attorneys general, Bank of America has agreed to bigger principal reductions on about 200,000 loans. The reductions could total more than $100,000 each, a bank spokesman told The New York Times.

By granting those larger reductions, Bank of America hopes to avoid about $850 million in penalties.

Post continues below

The deal will apply to mortgages owned or serviced by Bank of American that are underwater and at least 60 days overdue. Many are likely to be mortgages originated by Countrywide, which Bank of America bought in 2008.

• Deal may help only 5% of underwater homeowners

Bank of America also has halted foreclosure sales of homes that might be affected by the provisions of the settlement.

• REO-to-rental program draws skepticism

You can find out here if you might be eligible for relief from Bank of America or one of the four other lenders covered by the settlement. Plus, other lenders may still sign on to the deal. So far, no homeowners whose loans are backed by Fannie Mae or Freddie Mac are eligible for principal reduction.

• Audit finds legal problems with 84% of foreclosures

Whether to cut principal, and who should bear the losses, was a contentious issue in the year-long negotiations. One key question was whether the deal should focus on penalizing banks or whether negotiators should use the threat of penalties to push for more benefits to homeowners.

In the end, the negotiators agreed on formulas that reduce penalties and fines in exchange for help to homeowners.