If you have a loan owned or serviced by Bank of America and are 60 days late or more, you MAY for its new "earned principal forgiveness." About 95% of the loans that Bank of America services for private investors in which the investor has delegated authority to the bank may qualify. The types of loans that may qualify include pay option ARMs, prime two-year hybrid mortgages and subprime loans initially offered by Countrywide. Fannie Mae and Freddie Mac loans will not be eligible. 

B of A estimates that only 45,000 customers will ultimately qualify for this program and about $3 billion dollars of principal will be reduced provided all the customers accept and complete the program over a 5 year tern and the value of the home does not rise after the third year.

This "earned principal forgiveness" program will be offered as part of Bank of America's National Homeownership Retention Program, which is available in 44 states and the District of Columbia. To qualify for this principal forgiveness, homeowners will need to meet all the other qualifications of HAMP. They will need to prove that they have a hardship and cannot afford their current mortgage.  

Details:

1. If you have a pay option ARM the bank will first look at your negative amortization account. With these loans borrowers were able to defer interest payments and these payments are held in negative amortization accounts. As part of the HAMP modification, the bank will eliminate this feature and forgive all or part of the negative amortization to reduce principal to as low as 95% loan to value (LTV).
2. Also, pay option ARMs will be recast to eliminate the negative amortization and converted to fully amortizing loans.
3. Next if the principal balance of the loan is greater than 120% LTV the bank will consider a set-aside of up to 30% of the principal as an "interest-free forbearance of principal." The amount set aside interest-free will be eligible for possible forgiveness.
4. In addition to pay option ARMs, some prime two-year hybrids and Countrywide mortgages will be included in this program.
5. As long as you pay your loan on time during a five year period, it's possible all the interest-free principal that was set aside will be forgiven. Whether or not all is forgiven will depend on the value of your home in the fourth and fifth year.
6. http://webmedia.bankofamerica.com/corporateresponsibility/NHRP%20Enhancements%20Fact%20Sheet.pdf
   
   

Take the example of a home now worth $200,000 but with a mortgage of $250,000. In this scenario $50,000 would be set aside as an "interest-free forbearance of principal." In determining the HAMP payment the bank would use a $200,000 loan-to-value to set the new mortgage payments.

As long as homeowners continue to pay the loan on time over a five-year period, each year one fifth of the "interest-free" principal set aside would be forgiven. So, for example, at the end of the first year $10,000 would be forgiven. This will continue each year as long as the forgiven amount does not reduce the principal below 100% of the current market value.

But in years four and five, if the market value has recovered, some of the principal may not be forgiven. For example, suppose in year 4 the house price has appreciated $20,000 and now the house is worth $220,000, the remaining $20,000 sitting in the "interest-free" account would not be forgiven.

On a side note:  Bank of America Corporation on April 16, 2010 reported first-quarter 2010 net income of $3.2 billion compared with a net loss of $194 million in the fourth quarter and net income of $4.2 billion a year earlier. After preferred dividends, the company earned $0.28 per diluted share in the first quarter, up from a loss of $0.60 per share in the fourth quarter and earnings of $0.44 per share in the first quarter of 2009.

Sources:  Lita Epstein, Bank of America