Bank of America, under the terms of the recent robo-signing settlement, will soon be reducing home loan balances for 200,000 of its underwater customers.
The $26 billion settlement penalized the nation’s five largest banks – Bank of American, JPMorgan Chase, Citigroup, Wells Fargo, and Ally Financial – for their role in the foreclosure processing scandal uncovered in the fall of 2010, where it was revealed that lenders were knowingly pushing through thousands of foreclosures without all the proper documentation.
Now, all the banks will have to lower principal balances for hundreds of thousands of mortgage borrowers who ow more on their homes than they are currently worth. Between all five banks, this deal is supposed to benefit about 1 million homeowners.
According to spokesman Rick Simon, Bank of America has said it will reduce those token 200,000 loan balances by an average of $100,000 or more. That’s dramatically higher than the average of $20,000 discussed under the original settlement terms. The bank is hoping to reduce the balances on those loans to 100 percent of the current market value.
Although this announcement make Bank of America seem quite generous, the institution actually has a pretty large carrot being dangled in front of its face. If it shows that it has complied with all the terms of the settlement during the next three years, the bank can have $850 billion in payment penalties forgiven.
“We expect to get off to a fast start with this program,” said Simon as quoted in a CNN Money article.
Bank of America has hand-chosen the 200,000 loans it plans to modify and will notify those borrowers as soon as a federal court finalizes the settlement.
The other banks will also be reducing mortgage principal for customers who are underwater, but they are only expected to bring those loans down to between 115 percent and 125 percent of the current home values.