MINNEAPOLIS -- Bank of America said it will forgive up to 30-percent of the principal amount on a home loan for some of its most troubled borrowers as part of a new program from the largest mortgage lender to help homeowners who owe more on their house than it's worth.
Of the more than 40,000 current listings in the Minnesota housing market, nearly 8,000 roughly one in five are in foreclosure.
"The number of actual foreclosure sales has dropped off a little bit, but the number of delinquencies is actually higher, which foretells a bad story down the road," explained University of Minnesota's Prentiss Cox.
As part of a legal settlement out of Massachusetts, Bank of America, which owns mortgage lender Countrywide, agreed to reduce the amount of a chunk of mortgages on its books.
The agreement will provide an estimated $3 billion to some 45,000 distressed homeowners across the country.
For example, say you owe $250,000 on a house which is now only worth $200,000.
Your mortgage will be reduced to the $200,000 as long as you continue to make payments.
The $50,000 will only go away if you keep up the payments for the next five years or if the housing market recovers.
The catch for now, the bank gets to decide which homeowners get the discount.
"The consequence of not regulating on the front end is we have a mess on the back end and then one of the ways we clean up that mess is we're going to have make some fine lines and choices about how we keep people in their homes," said Cox.
Cox said if people stay in their homes it helps keep foreclosures out of the market, which would help re-establish a real estate industry in flux.
There are those who oppose bank regulations and argue the only way for the housing industry to recover is to go through the pain of foreclosures even if they continue over the next few years.
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