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Bank of America is offering about 200,000 homeowners a chance to wipe out a big chunk of their mortgage debt. The offers are part of the settlement Bank of America and other major banks reached with state and federal regulators earlier this year, and it's one of the biggest principal forgiveness opportunities so far.
The one-time offers are arriving in the mail this week. The average reduction in principal being offered is about $150,000, says Ron Sturzenegger, an executive at Bank of America. "And when you take their new principal amount times their new interest rate, it's about a 35 percent savings from what they were paying before," he says.
Only a small subset of Bank of America's borrowers qualified.
Homeowners had to owe more than their home is worth and had to have been at least two months delinquent on payments as of the end of January. And the offer only applies to those whose loans were held and serviced by Bank of America, or investors who authorized the bank to change the terms of its loans.
Sturzenegger worries that some of those receiving the offer will ignore it. Many troubled homeowners are already wary of various calls and mailings concerning their loans.
"They have become defensive and they have not responded," Sturzenegger says. "We would like for them to know this one is different. I don't want to say this is their best last chance, but I think it's the best chance they've had so far."
Those who don't qualify may still sign up for what Bank of America calls "dignified alternatives" — plans allowing them to lease back their homes, or modify their loans without loan forgiveness.