Bank of America Corp. said Wednesday it has contacted 10,000 of its most troubled mortgage borrowers about its new loan forgiveness program.
The country's largest mortgage servicer expects the first modifications to start in late June, Jack Schakett, a company credit loss mitigation executive, said on a conference call.
In March, the company rolled out a relief plan to reduce the mortgage principal by up to 30 percent for those homeowners who have missed at least two monthly payments and owe 20 percent or more than their home is currently worth. Only certain types of loans originally issued by Countrywide Financial Corp. qualify.
The offer to forgive portions of some customers' total mortgage balances is part of a broader initiative begun in late 2008 under the bank's National Homeownership Retention Program.
Charlotte, N.C.-based Bank of America launched the program after reaching an agreement with state attorneys general to settle charges over high-risk loans made by Countrywide. The loans were made before Bank of America acquired the Calabasas, Calif.-based mortgage lender in mid-2008. Bank of America has since stopped making those loans.
The company will forgive a portion of the principal over three or five years depending on the borrower's situation. The borrower can't miss any monthly payments under the plan to stay eligible.
The bank expects to reach out to about 45,000 customers over the next several years for this program.
Schakett didn't estimate how much money Bank of America may lose, but he said it already has reserved cash for many of these delinquent loans.
"The good news is we believe the loss will be smaller than if we go through foreclosure," he said.
The federal government will pay 18 percent of the forgiven principal under the three-year plan, Schakett said. It will pay the same percentage for three years only under the five-year plan. Bank of America expects to steer most borrowers into the three-year plan.
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