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Bank of America Modifies Loan-Mod Plan

Bank of America Corp. said Wednesday that most of the home-mortgage borrowers it had planned to offer principal reductions under a company program will instead be funneled to a government initiative that gives the servicer incentive payments.

The Treasury Department's program also will provide relief more quickly for these troubled borrowers. It would make principal reductions permanent over three years, versus five years for B of A's program, Jack Schakett, the Charlotte banking company's credit loss mitigation executive, said Wednesday.

"We are going to roll out the government's program as soon as they finish the documentation," he said on a conference call with reporters. "Eighty percent" of the borrowers eligible for the company initiative "will be in the three-year program."

In late March, BofA announced that it would offer "conditional" principal reduction to 45,000 delinquent borrowers whose loan balances were at least 120% larger than the current value of the home. Eligible borrowers could receive up to 30% of principal forgiven as long as they continued to pay their mortgage for five years.

Two days later, the Treasury said it would require servicers participating in the Home Affordable Modification Program to consider principal writedowns for borrowers who owe more than 115% of the current value of their home. The department said it would provide incentive payments for each dollar of principal written down by servicers and investors. (HAMP, which had started a year earlier, did not previously use principal reductions to lower borrowers' payments.) The Treasury is expected to issue detailed guidance on principal forgiveness soon.

Now, only the most severely delinquent BofA borrowers — those whose loans have already been charged off — will end up in the company's program, Schakett said.

He also acknowledged that B of A had failed in many ways to help borrowers seeking loan modifications.

"We have not handled our customers to the standards that BofA is accustomed to," he said in response to a reporter's question about complaints from borrowers about lost paperwork. "Quite frankly, our efforts have not been up to the standards that we expect. We continue to try to make improvements. We're learning from our mistakes and we do think the experience is getting better and better but it's not where we'd like it to be because we still have customer complaints."

The borrowers eligible for BofA's principal reduction program all received subprime, pay-option adjustable-rate mortgages or hybrid adjustable-rate loans from Countrywide Financial Corp., which BofA bought in 2008.

The total unpaid principal balance for these loans is $3 billion, Schakett said. Just 15% of the loans are owned by B of A; the rest are securitized.

The principal reductions had been part of a settlement with the Massachusetts Attorney General's Office, which accused Countrywide of predatory lending.

"This is our last chance to try to save these customers," Schakett said. "Maybe the reason they didn't respond" to previous solicitations "is they didn't get principal reductions and were seriously underwater."

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