BofA Forgives Home-Loan Principals - Analyst Blog

According to the agreement with state attorneys general to help homeowners who got high-risk home loans from Countrywide Financial, Bank of America Corp. (BAC) said on Wednesday that it would forgive about $3 billion in principal loan amount to about 45,000 troubled borrowers.

The borrowers had taken those loans before BofA acquired Countrywide Financial in mid-2008. However, following the acquisition, BofA has stopped such loans.

BofA will offer up to 30% of total loan balances for homeowners who owe more than 20% of the value of their home and missed at least two months of mortgage payments.

BofA is expected to start the process in May 2010. Following the execution, BofA will be the first U.S. mortgage lender to take such a systematic approach to reducing mortgage principal to help distressed borrowers by preventing foreclosures.

Wells Fargo & Co. (WFC) said that it has modified more than 52,000 mortgage loans it absorbed when it acquired Wachovia Corp. In addition, Wells Fargo had reduced the principal on those loans by more than $2.6 billion.

BofA had already completed modifications for about 22,000 homeowners as of Feb 2010. This equals about 8% of its total list, compared to about 11% for JPMorgan Chase & Co. (JPM).

Earlier this month, the Treasury received net proceeds of $1.5 billion from the sale of warrants entitling it to purchase BofA common stock.

The amount received from the auction of BofA warrants exceeds $1.1 billion raised from the sale of Goldman Sachs (GS) warrants earlier.

The market turmoil was more harmful to BofA than its peers. However, the company has concluded acquisitions of Merrill Lynch and Countrywide Financial almost during the height of the financial crisis last year.

The CEO views these deals as beneficial for stakeholders of the company. Furthermore, this will allow the bank to focus on rebuilding customer relationships.