Here is some information on how the Bank of America loan modification may work:

Here’s how it will work, according to Bank of America officials: Say you’re deeply underwater on a subprime mortgage you took out from Countrywide Home Loans, which was acquired by Bank of America in 2008. The mortgage balance today is $250,000, but the house is worth only $200,000.

If you meet eligibility requirements, the program could reduce your balance by $50,000 and your new payments would be based on the lowered principal debt and possibly a lower note rate. This would be accomplished by the creation of an interest-free forbearance account covering a five-year period. Assuming you made regular payments at the modified, lower amount during the first year, $10,000 would be forgiven by the bank.

Whatever the case may be, I’m sure that many people are quite a ways in the red and won’t be able to get out of their current home loan situations without the help of their lenders or bankruptcy. It’s an unfortunate situation, but it’s true.

Basically, home loan modification programs offer the homeowner a permanent change in one or more terms in the mortgage loan, whether it be interest rate, loan term, or even amount owed (in rare cases). The purpose of loan modification programs is to allow the homeowner to retain the house.

Typically when testing to see if a borrower is eligible for a loan modification, the loan modification company, or real estate lawyer will gather information to see if you qualify for a rate reduction and/or principal reduction. Once a borrower qualifies, it all comes down to negotiation and numbers to see if there are any feasible options that will allow the homeowner to stay in the home.