Bank of America Makes a Bold Move – Principal Forgiveness

Change in attitude?

Today, Bank of America announced that it will introduce “principal forgiveness” which will look to reduce loan balances of qualifying distressed homeowners with adjustable rate mortgages or subprime loans in an effort to make their payments more affordable.

While smaller banks have already began taking this position, Bank of America is one of the first large banks to attempts this highly criticized loan modification option.

The Obama administration has been under fire this year for their highly ineffective Home Affordability Modification Program and rather than implement principal reduction, HAMP was simply extended.

With more homeowners becoming distressed and considering their limited options, banks currently offer a lengthened term or a change in interest rates, but this move to reduce principal is quite bold. Given BoA’s recent performance, we have to wonder if this is a PR move or if this might actually impact BoA loan holders?