Bank of America is erasing the debt on 150,000 second liens for mortgage borrowers in financial difficulty, the lender has announced.
The move completely extinguishes the unpaid balance on second lien debt for qualified homeowners, who are being informed of their eligibility by mail. Mailings to eligible customers began in July.
Customers chosen for the offer will typically be those who are currently in default on their second liens. Bank of America said it is undertaking the measure in order to help eligible homeowners get back on track financially with their primary mortgages and avoid foreclosure.
A small number who are current on their second liens but in difficulty with their primary mortgages will also receive the offer to have their debt erased.
The initiative is one of the customer relief programs Bank of America is initiating in partial fulfillment of its obligations under the $25 billion foreclosure abuses settlement reached by Bank of America and four other major mortgage lenders with federal authorities and state attorneys general.
Second liens will be automatically eliminated for borrowers receiving the offer unless they contact Bank of America within 30 days to opt out. Some borrowers may choose to opt out because there could be tax implications, with the forgiven debt counted as income for tax purposes.
Extinguished second liens will be reported as paid in full and closed, so there should not be any negative effects on borrower's credit ratings, according to Bank of America.
Borrowers will not be able to apply on their own to have second liens extinguished; only those contacted by Bank of America will be eligible. In addition, the program only applies to second liens serviced or held by Bank of America.