If you’re deep underwater on your Bank of America mortgage, B of A’s new principal reduction program might be just the lifeline you need to avoid foreclosure. Like many of the possible housing and/or mortgage fixes out there, it’s not for everyone. Homeowners considering a Phoenix short sale should look at this program as a possible solution.  Could this new program be the solution to your mortgage problem?

How the Bank of America Principal Reduction Program Works

If you currently owe more than your home is worth, and your mortgage meets the parameters for the program, Bank of America might be willing to reduce the amount of principal owed on your mortgage loan over a 3-5 year period, if:

  • Your loan is NOT backed by Fannie Mae, Freddie Mac, FHA, or VA (this could be a tough condition to meet; more than 70% of all mortgage loans are backed by these four mortgage giants)
  • You were at least 60 days late on your mortgage payments on January 31, 2012
  • Your mortgage loan was originated between 2005-2009
  • Your loan fits into the “sub-prime” category, was issued by Countrywide Financial, or is owned by BofA or one of it's private investors.

Depending on whether you’re able to get into the 3-year or the 5-year program, Bank of America will incrementally reduce your outstanding principal balance each year you’re in the program down to today’s fair market value for your home. For instance, pretend you currently owe $315,000 on your home even though it’s only worth $265,000 (a common occurrence in today’s market). If you’re in the 3-year principal reduction program, Bank of America will reduce your principal by $50,000 – the difference between how much you owe on your mortgage and how much it is worth today – spread evenly over a three-year period (in this case, just under $17,000 per year).  If approved for this program, you will make monthly mortgage payments based on the reduced principal amount of $265,000.

So How Much Might Bank of America Shave Off of Your Principal Balance?

Bank of America has drawn a firm line in the sand on the Principal Reduction Program: Assuming you qualify for the program, they’ll dial down your mortgage balance to equal today’s fair market value of your home, but that cap the principal reduction at $100,000. If you qualify, this could be a pretty good deal for you.

The Fine Print: How the Bank of America Principal Reduction Program Might Not Help You

As with anything designed to help people, the Devil’s in the details. There’s no guarantee that the Bank of America Principal Reduction Program will help you. In fact, it might be a very bad deal for you, especially if:

  • You’re currently going through the foreclosure process and you pin all of your hopes for staying in your home on being accepted into the program
  • You miss a mortgage payment at any point after being accepted into the Principal Reduction Program
  • There’s no way you can afford to make monthly mortgage payments, even at a reduced amount
  • You were not 60 days late on your mortgage as of January 31st, 2012.  Because you are forced to be at least 60 days late, your credit score will continue to suffer while BofA decides if you qualify for the program.
  • Fannie Mae, Freddie Mac, FHA, or VA guarantees your mortgage (is so, you will not be eligible for the program)
  • Your loan was not originally owned by Countrywide, or is not owned by BofA or one of it's private investors

What to Do if the B of A Principal Reduction Program Won’t Work for You

Even though the Bank of America Principal Reduction Program has the raw potential to help several hundred thousand homeowners, it’s not for everyone. If your mortgage loan won’t qualify, or you need to find another foreclosure avoidance strategy quickly, please give me a call today at (602) 909-5994.  Our team of Phoenix short sale agents stands ready to help guide you through the process of avoiding foreclosure.

Effective solutions that can help you resolve your foreclosure crisis are available. The first step is up to you. If you don’t call, I can’t help you avoid foreclosure. Your credit rating and your financial future are too important to let fear, pride or uncertainty about the unknown get in the way of asking for help. Call me today!