Because defaulting on mortgage loan repayments can lead to foreclosure and the lowering of property values the government decided to implement a program of mortgage principal reduction. This program is designed to assist home owners who are struggling to pay off their loans on time. In a way this is a forgiveness program that pardons borrowers in default, but not as completely as you might be thinking. Read on to find out more about this.

The program being implemented by the bank of America is set to open its doors to the public at the beginning of May this year. It will allow borrowers to reduce the balance on their mortgages to 100% of the value of the loan. What happens is that they will regard a certain percentage of your principal balance to be interest free leniency. In the long run they can then approve the pardoning of 30% of the principal. But this reduction is open to homeowners who do not default on payments for five years.

On top of this interest rates can also be lowered to become as low as 2%. And for those who would like to pay a lot less every month there is the opportunity for them to actually extend the repayment period for the loan. Sometimes banks and lending institutions can extend the repayment period to 40 years.

For you to qualify for reduction you must at least be in a position of hardship. Every application must be accompanied with a letter of hardship that brings to light the extent of your financial problems. Utility bills, insurance policies, pay slips and your mortgage contract are other documents banks would like to see attached to any application.

But you must be careful with modification facilities as they are offered by the different credit institutions. Obviously there will always be that dishonest modification company that charges you a lot more in the long run due to hidden fees and charges. Plus, be wary of affecting your credit score by making an application after having defaulted on payments as this will only dent your score.