NEW YORK — Bank of America Corp. announced that it will make principal forgiveness a priority for certain subprime mortgages.
Bank of America had been under pressure to help subprime mortgage borrowers it inherited with the purchase of Countrywide Financial. On Wednesday, the bank said it "will look first at principal forgiveness, ahead of an interest rate reduction, when modifying certain subprime, Pay-Option and prime two-year hybrid mortgages" that qualify for its National Homeownership Retention Program.
The bank said it hopes to offer such principal reductions to about 45,000 customers who qualify for a modification through the government's Home Affordable Modification Program and to reduce principals by $3 billion.
The bank also said it would extend the NHR program, which was launched in 2008 under pressure from several state attorneys general, to the end of 2012. It said the extension announced Wednesday was developed in cooperation with Massachusetts.
"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," Barbara Desoer, president of Bank of America Home Loans, said in a statement.
Principal forgiveness has been controversial because it allows homeowners to benefit from the potential increase in the value of their home, but locks out banks, mortgage services, and holders of the loan from benefiting when home values rise. But the government and some bankers have long felt that more borrowers should be given the chance to lower their loan amount to stem foreclosure.