Bank of America (BAC.N) appears to be submitting to pressure from Massachusetts Attorney General Martha Coakley, announcing Wednesday that it would provide $3 billion in loan forgiveness to roughly 45,000 homeowners struggling to pay up.
Bank of America has introduced a new policy in which those homeowners who owe more than 120 percent of the total value of their homes could be eligible for loan forgiveness. Up to 30 percent of U.S. homeowners fall into this category.
The new policy is set to become active in May. Bank of America is breaking ground with the move establishing the firm as the first lender to attempt to minimize the staggering number of U.S. home foreclosures.
The forgiveness would be presented in a two prong plan for the highest risk loansn like subprime loans, and those loans that give payers the choice of how much to pay months. 30-year-fixed rate loans will not be eligible for forgiveness.
The lender will rearrange the loan to provide the borrower with an interest-free forbearance of the initial loan amount. The homeowner can shift into forgiven principal annually over the course of five years, should they maintain their altered payment schedule.
The forgiveness would permit the borrower to only pay the initial home value over five years rather than be accountable for the additional 20 percent.
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