Principal forgiveness can help qualified homeowners
who are past due and underwater
Bank of America has implemented an earned principal forgiveness approach to modifying certain loans eligible for its National Homeownership Retention Program (NHRP).
The plan is designed for homeowners who are past due on their mortgage payments and owe considerably more on their loan than the current value of their home, when the loan is being considered for modification through the government’s Home Affordable Modification Program (HAMP).
How it works
In order to be eligible for principal forgiveness:
- you must be at least 60 days late on your home loan payments
- the remaining principal balance on your home loan must be more than 120% of the current value of your home
The maximum amount of principal forgiveness is 30% of the remaining principal balance on your loan, so long as this does not reduce your loan-to-value (LTV) ratio to less than 100%. The reason: the amount you owe is now equal to the value of your home and, moving forward, you’re ready to build positive equity.
Depending on your situation, the principal will be forgiven in equal amounts over 3 or 5 years. In the 5-year option, the amount forgiven in years 4 and 5 is conditional, based on the value of your home at that time.
After being approved for principal forgiveness, it’s important to stay current on your new monthly payments, as falling behind could affect your eligibility.
Sample scenarios
Say the current principal balance of a mortgage is $250,000, but the home is now only worth $200,000. This loan may be eligible for $50,000 of principal forgiveness. Here’s how that could work with the 3-year and 5-year options.*
In this example, the $50,000 of principal forgiveness is divided into equal thirds and spread over three years. Interest is paid only on $200,000 of the loan.
| Amount you pay interest on | Principal forgiveness | New principal balance | |
|---|---|---|---|
| Year 1: | $200,000 | $16,667 | $233,333 |
| Year 2: | $200,000 | $16,667 | $216,667 |
| Year 3: | $200,000 | $16,667 | $200,000 |
| Current home value | Loan-to-value (LTV) ratio | Amount you pay interest on | Principal forgiveness | New principal balance | |
|---|---|---|---|---|---|
| Year 1: | $200,000 | 125% | $200,000 | $10,000 | $240,000 |
| Year 2: | $202,000 | 119% | $200,000 | $10,000 | $230,000 |
| Year 3: | $202,000 | 114% | $200,000 | $10,000 | $220,000 |
| Year 4: | $206,000 | 107% | $200,000 | $10,000 | $210,000 |
| Year 5: | $208,000 | 101% | $200,000 | $2,000 | $208,000 |
In this example, the homeowner would only pay interest on $200,000 and the total principal balance is reduced by $10,000 each year.
By year five, the value of this home has risen so that the difference between the principal balance and the home’s value is now $2,000. Since the scheduled principal forgiveness of $10,000 would bring the LTV ratio below 100%, the amount of principal forgiveness permitted is only $2,000. At this point, the loan amount ($208,000) is equal to the home’s value, putting the homeowner back on even ground.
* Note: all numbers in table are for illustrative purposes only; individual cases may vary.
The innovative approach outlined here is part of our ongoing effort to help customers stay in their homes. Since the initial outreach to customers under the NHRP in December 2008 through March of this year, the Bank has offered an NHRP modification or started an NHRP-eligible trial modification under HAMP for more than 200,000 homeowners.
Learn more about getting started with the Home Affordable Modification Program.
See the full press release on principal reduction.
March 25, 2010
Coming soon: National Homeownership Retention Program Update
On March 24, 2010, Bank of America announced enhancements to the National Homeownership Retention Program to modify the mortgages of qualified homeowners who are experiencing financial hardship. The National Homeownership Retention Program is already available to customers with a Countrywide subprime loan or Pay-Option ARM loan. Soon, as an update to the existing mortgage modification program, we will expand it to include two-year hybrid adjustable-rate mortgages. And, to make the program even more accessible, we will expand the eligibility date to include loans originated on or before January 1, 2009. We will also extend the program end date to December 31, 2012.
At Bank of America, we are committed to making government and proprietary home loan assistance solutions available as quickly as possible. Although the National Homeownership Program is currently available to our customers, these new enhancements are not yet in place. We are working swiftly to implement these changes. As soon as the program details are in place, we will begin offering this enhanced program to all of our qualified customers. We will proactively reach out to qualified customers and will continue to do so once the enhancements are in place.
Please keep checking back here for complete details about when these enhancements will be available, eligibility requirements and how to take advantage of this program. In the meantime, if you are experiencing a financial hardship, help may already be available. We have existing programs that may provide assistance to homeowners who are having difficulty making their mortgage payments. Call us right away to update us on your current financial situation. We’ll compare this information to all available home loan assistance programs. Let’s work together to keep you in your home.
March 25, 2010
Home Loan Assistance Frequently Asked Questions
First, Bank of America Home Loans will need to determine your financial situation and hardship. Once we have your current financial information, we will evaluate your loan for all possible home retention options so that you can determine which option might be right for you.
You may be eligible for the enhancements to the National Homeownership Retention Program if you meet the following program requirements:
- Have a Countrywide subprime mortgage, a Pay-Option adjustable-rate mortgage or a prime two-year hybrid adjustable-rate mortgage
- Originated your loan on or prior to January 1, 2009
- Are 60 days or more delinquent or in imminent danger of default and the current loan-to-value ratio is 75% or higher (The loan-to-value ratio is the ratio between the unpaid principal amount of your loan and the appraised value of your home)
- Have a subprime hybrid ARM and are current but believe you will not be able to afford your mortgage payment in the near future as a consequence of a rate reset, and the loan-to-value ratio at the time of the modification is 75% or higher
- Have a Pay Option ARM and are current but believe you will not be able to afford your mortgage payment in the near future as a consequence of a rate reset or payment recast, and the loan-to-value ratio at the time of the modification is 75% or higher
- Have a property that is a 1-to-4 unit owner-occupied residential property
- For the earned forgiveness program, be 60 days or more delinquent and the current loan-to-value ratio is 120% or higher
- For the negative amortization principal reduction program, be 60 days or more delinquent or be current but reasonably likely to become 60 days or more delinquent (i.e. facing imminent default) and the current loan to value ratio is above 95%.
Bank of America Home Loans offers a range of modification solutions for customers facing financial hardship. The National Homeowner Retention Program is one of the programs that we offer for customers with subprime loans, Pay-Option ARM loans or prime two-year hybrid loans who meet program requirements. Other programs, such as the Home Affordable Modification program (HAMP), are also available and designed to provide more affordable mortgage payments to customers facing financial hardship. Modifications will provide more affordable payments using a combination of the following:
- Reducing interest rate
- Providing a term extension
- Providing principal forgiveness or principal forbearance
Once the enhancements are launched, Bank of America Home Loans will both mail and call all eligible customers to collect the necessary information and determine if they qualify for the National Homeownership Retention Program.
If you are not sure what type of loan you have with Bank of America Home Loans, please call us at 1.800.669.6607 and we can provide you with that information.
Please call Bank of America Home Loans Customer Service at 1.800.669.6607 if you would like to determine your eligibility. Bank of America Home Loans will also be contacting eligible customers to see if they are interested in applying for the program.
We want to give customers loan options that are affordable and work into the future based on your individual financial situation.
The program is already in effect, and will be enhanced in mid-May. Additional information can be found at www.bankofamerica.com/homeloanhelp.
The National Homeownership Retention Program (NHRP) looks at each customer’s situation and determines how we can provide you with an affordable mortgage payment. Depending on your situation, the NHRP may use principal forgiveness to do this. The NHRP may offer principal forbearance with an opportunity to earn principal forgiveness.
Principal forbearance provides temporary relief during a time of hardship. This means after demonstrating a hardship, Bank of America Home Loans will defer or postpone your mortgage payment for a period of time. For purposes of NHRP and the Home Affordable Modification program (HAMP), Bank of America Home Loans offers interest-free forbearance to qualifying borrowers for the life of the loan. At the end of the loan term or at the time the loan is paid off through sale or refinancing, any remaining forborne amount must be paid by the borrower.
You may also qualify for earned principal forgiveness where a portion of the debt or loan amount is waived and you are no longer responsible to pay back that amount. However, you must remain in good standing on your payments or you will not receive forgiveness. The principal forgiveness occurs over five years. The amount of principal forgiveness that you can earn remains the same for the first three years. In the fourth and fifth years, the amount of forgiveness may be less, if an increase in the property value since the modification was made would result in your principal balance dropping below the current value of the property. Please note: there may be tax implications. You may want to consult a tax professional regarding your individual tax situation.
If you have a Pay Option ARM that is in delinquency or you can demonstrate a hardship that puts you in imminent danger of becoming seriously delinquent, and your principal balance includes an amount resulting from negative amortization, that amount may be reduced from the principal balance to bring it to as low as 95% of the current value of the property.
All Bank of America Home Loans modification solutions are designed to bring a loan payment to an affordable and reasonable amount that borrowers are able to sustain over time. If you have completed a loan modification or are currently in a trial period for a modification, your loan likely received a rate forgiveness and/or term extension in order to achieve an affordable and reasonable payment. Principal forgiveness is another tool to achieve this same result. In addition, under the federal government’s Making Home Affordable program, you can only qualify for one modification, so if you are in a trial period plan or a permanent modification, you would not qualify for another modification.
However, as we get closer to implementation, we will consider the application of the principal reduction enhancements to potentially eligible trial and permanent modifications, and will notify eligible borrowers accordingly.
If you are currently in a trial modification, a solution to bring your mortgage to an affordable and reasonable payment has been achieved and no additional tools (including principal forgiveness) would be necessary. We encourage you to continue making timely payments and to return all required, completed documents to ensure your trial will convert to a permanent modification, as you cannot be considered for another MHA modification if you do not fulfill your trial modification requirements.
However, as we get closer to implementation, we will consider the application of the principal reduction enhancements to potentially eligible trial and permanent modifications, and will notify eligible borrowers accordingly.
Even though you have started the short sale process, you can still be evaluated for a loan modification unless you have already been in a modification trial period or have received a permanent modification. If your financial situation has changed, we can collect your new financial information and reevaluate your loan for this program and other foreclosure prevention options. Please call us at 1.800.669.6607 or go to bankofamerica.com/homeloanhelp to learn how to provide this new information.
If your financial situation has changed since your loan was last evaluated for a modification, we can collect your new financial information and reevaluate the loan for this and other foreclosure prevention options.
Your loan will be considered for all modification programs available to you to help you achieve an affordable monthly mortgage payment. If you are not eligible for a loan modification, we can discuss other options.
Your state does not have to participate in the program for you to be eligible or considered for a modification. If you are a Bank of America Home Loans customer, we can discuss your situation and see if you qualify for NHRP or other modification options to assist you. Call us at 1.800.669.6607 or go to bankofamerica.com/homeloanhelp.
No. This program is only for owner-occupied properties.
No, the NHRP does not cover HELOCS or second mortgages. If you have a HELOC or second mortgage with Bank of America Home Loans, we will review it when we review your first mortgage. If your HELOC or second mortgage is with another lender, you will need to discuss your options with that lender.
If your first lien is held by an investor other than Bank of America or one of its subsidiaries and you have a second lien on the property, we are unable to consider your first lien for modification under the new programs, but we will review your eligibility for another solution using HAMP or our proprietary modification programs.
There are no fees assessed for participating in any modification program with Bank of America Home Loans.
You may still be reviewed for a modification. If you are eligible for one of our programs, your foreclosure sale will be placed on hold while we work to qualify you for the program and work through the modification process. Call us at 1.800.669.6607 or go to bankofamerica.com/homeloanhelp.
Customers current on their loans may qualify for this program if they can demonstrate in good faith that they are reasonably likely to become 60 days or more delinquent as a result of a rate reset on a subprime ARM loan or a Pay-Option ARM loan or prime 2-year hybrid ARM, or a payment recast based on negative amortization on a Pay-Option ARM loan, and their loan-to-value ratio is 75% or higher. You will be asked to provide financial documentation demonstrating financial hardship to qualify for the program. With respect to the recently announced principal reduction enhancements to the program, the negative amortization write-down solution is being offered to certain Pay Option ARM borrowers who are current on their payments but facing imminent default.
If you are current on your loan, we will first evaluate you for the Home Affordable Refinance Program (HARP), which we are required to do under the government guidelines. If you do not qualify for a refinance, we will then evaluate your loan for the Home Affordable Modification Program under Imminent Default if you have a financial hardship and will not be able to afford your current mortgage payment in the immediate future.
We have expanded the program until December 31, 2012, six months longer than the original program date.
