How Bank of America's principal reduction plan will work

If you have a loan directly from Bank of America or Countrywide and are 60 days or more late, you may qualify for its new "earned principal forgiveness." Also about 95% of the loans that Bank of America services for private investors in which the investor has delegated authority to the bank may qualify. The types of loans that may qualify include pay option ARMs, prime two-year hybrid mortgages and subprime loans initially offered by Countrywide. Fannie Mae and Freddie Mac loans will not be eligible.

But don't rush to make a call to Bank of America today. The new program won't be available until May and Bank of America will be doing the outreach to you if you qualify. Jack Schakett, a credit loss mitigation strategies executive for the bank, said in a press conference today there were 1.5 million borrowers 60 days or more behind on their loans, but not all these borrowers will qualify. Right now the bank estimates about 45,000 customers will ultimately qualify for this program and about $3 billion dollars of principal will be reduced, provided all the customers accept and complete the program.

"The centerpiece of these enhancements is a program of earned principal forgiveness that addresses severely underwater mortgages with some of the highest rates of delinquency – specifically subprime loans, Pay-Option ARMs and prime two-year hybrid ARMs that are 60 days or more delinquent with a principal balance of 120% or more," said Barbara Desoer, president of Bank of America Home Loans during a press conference today.