Kenneth Harney of the Washington Post reported at the end of March that the idea of a lender forgiving a part of the loan principal may in fact become a reality.
According to Harney, “Bank of America recently unveiled the mortgage industry’s first large-scale principal forgiveness program, potentially involving up to 45,000 underwater borrowers and $3 billion in debt write-offs.” He then adds, “Here’s how it will work, according to Bank of America officials: Say you’re deeply underwater on a subprime mortgage you took out from Countrywide Home Loans, which was aquired by Bank of America in 2008. Say your mortgage balance is $250.000, but your house is only worth $200,000. If you meet certain eligiblity requirements, the new program could reduce your balance by $50,000 and your new payments would be based on the lowered principal debt and possibliy a lower note rate.”
Harney also reports that the Treasury Department is looking at adding the partial principal forgiveness element to the current loan modification program.