Bank of America to Reduce Mortgage Principal

Bank of America
Bank of America

For struggling homeowners, it was a blockbuster. Bank of America on Wednesday announced a new program aimed at reducing mortgage principal for homeowners that owe more than 120 percent of their home's value. Yes, you heard right: The bank will actually reduce principal owed for underwater borrowers and those with so-called negative amortization loans.

That's long been viewed as the Holy Grail for helping underwater homeowners, but banks have been reluctant to do more than lower interest payments. The initiative, according to BofA, would aim to bring loan values back down to 100 percent of the home's value over five years.

The BofA announcement marks a startling shift for the beleaguered bank, which has been dogged by complaints that it has been unresponsive to homeowners looking for help with mortgages they can no longer afford. The bank has also been stung by a string of embarrassing incidents where it has wrongfully seized homes for foreclosure.

Indeed, a lawsuit filed by homeowners in Washington on Tuesday charges that BofA "systematically slows or thwarts access to Troubled Asset Relief Program (TARP) funds by ignoring homeowners' requests to make reasonable mortgage adjustments or other alternative solutions that would prevent homes from being foreclosed," according to a press release announcing the suit.

Nothing like a good lawsuit to bring about radical change!