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BofA Extinguishing 2nd Liens

Delinquent borrowers benefiting from servicer settlement

Oct. 1, 2012

By Mortgage Daily staff

As part of the $25 billion multi-state mortgage servicer settlement, Bank of America is forgiving the entire principal on some second liens.

Around 150,000 letters are being sent by the Charlotte, N.C.-based company to pre-qualified borrowers with second mortgages, a news release Friday said. Letters began going out in July and will continue through the end of the year.

Borrowers are being offered automatic extinguishment of their second lien mortgages. They have 30 days to opt out of the relief. The deal is by invitation only.

Eligible loans include second liens that are owned and serviced by BofA. Most of the impacted assets are in default, though some are current but behind a delinquent first mortgage. If the first lien is in foreclosure, the principal forgiveness on the junior lien won't impact the first mortgage.

BofA is extending the forgiveness as part of its participation in the national mortgage settlement among the five largest mortgage servicers, 49 state attorneys general and the federal government that was announced in February.

"The intention of the program is to place homeowners in an improved financial situation by reducing their monthly debt obligations and, potentially, help them create equity in their property," the statement said.

The Internal Revenue Service will be notified by BofA about the principal forgiveness. But some borrowers might be exempt from tax liability because their debt is being forgiven in connection with a foreclosure prevention transaction.

Borrowers in a bankruptcy whose liens have been discharged will benefit because the lien that remains against a house after a bankruptcy will be released. In addition, the balances will show on their credit reports as "paid and closed."

Bank of America profile

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