Bank of America bit the bullet yesterday, announcing a major mortgage modification program covering around 400,000 Countrywide Financial customers with subprime or pay-option adjustable rate mortgages originated before December 31, 2007. The interest rate and principal reductions could total $8.4 billion. BofA worked with several state attorneys general on the modification plan.

The program will begin December 1; BofA promises “proactive outreach to eligible customers. Foreclosure sales will not be initiated or advanced for borrowers likely to qualify until Countrywide has made an affirmative decision on the borrower’s eligibility.” Delinquent borrowers or customers “likely to become seriously delinquent as a results of loan features such as rate resets of payment recasts” will be offered relief.

As part its agreement with the participating states, Countrywide will also “waive late fees associated with a borrower’s default in finalizing modifications under the program.”

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