Bank of America is announcing on Thursday a loan modification program to help military service members who are behind on their mortgages. What's unique about the program is that the bank is offering to reduce the principal owed on the loans instead of just adjusting the interest rate.
There is already a law designed to protect military personnel from financial stress. It bans foreclosures and reduces interest rates while they're on active duty.
What Bank of America is offering is a special program to help service members once they are no longer on active duty and no longer protected by the law.
"Without principal reduction, they may not be able to recover from that situation, and foreclosure would be their only option," says Dan Frahm, a spokesman for Bank of America. "We think principal reduction applied here puts us down a path to help them keep their home."
Initially, the program only applies to loans Bank of America owns, not the ones it services that are owned by investors.
"It's a good thing for some of the military people who qualify, but there are a lot more others who would benefit from a principal write-down," says John Taylor, president of the National Community Reinvestment Coalition. "Hopefully, this is the beginning of moving in that direction."
Frahm says the bank doesn't think principal reduction is the answer for everyone. And there are no plans to expand the program beyond those who are leaving active duty.