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March 24, 2010

BofA moves to stem wave of "strategic defaults"

Interesting ploy they're offering. They'll reduce your principal amount by up to 30% over 5 years is you'll just please keep paying on time.

Of course there's going to be a modest balance sheet hit from doing this, but it won't be as bad a hit as pulling the trigger on a foreclosure what would move your "asset" into the "liability" column and trigger adding hefty reserves.

Will this (up to) 30% be enough to turn people away from strategic defaults? I don't know. If someone could line up alternate accommodations that were still significantly cheaper than continued paying, probably not.

It seems in the "game of chicken" between borrowers and lenders, BofA just flinched. Obviously they don't see any significant rebound rebound in housing anytime soon, or they'd not be making such offers.

It will be interesting to see how many people they get to bite. A haircut is always better than a trip to Madame Guillotine I suppose.

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posted by Purp at 11:20 AM

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