Housing Market, Principal Reduction | featured news

Among first-lien mortgages that received a principal reduction, borrowers had their loan balances cut by an average of $117,000, according to the independent monitor established to ensure that banks were meeting the terms of a settlement agreed to in March.

Bank of America is making its first moves as part of its deal with the government in the massive $25 billion mortgage settlement. The nation’s second largest bank said today that it started reaching out to more than 200,000 customers about principal reductions on their mortgages. The letters from the bank are expected to arrive at customers’ homes this week with much of the remaining to be sent out by July.

Edward J. DeMarco, who oversees Fannie Mae and Freddie Mac, has infuriated many by refusing to tell the home loan giants to reduce the amounts owed by distressed homeowners.

Bank of America Corp and JPMorgan Chase & Co have started modifying tens of thousands of mortgages where the banks deem the loans especially risky, even if the borrowers have not asked, the New York Times reported on Sunday.

Many critics of the Obama administration's mortgage loan-modification program say it won't work because it doesn't do enough to address "negative equity," the plight of people who owe more on their home loans than the current value of those properties. Without equity in their homes, these critics say, borrowers have little incentive to keep paying and are apt to walk away as soon as things get tough, if not before.