DELAWARE TO MERS: NOT IN OUR STATE!

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Delaware sues MERS, claims mortgage deception

Posted on Stop Foreclosure Fraud

Posted on27 October 2011.

Delaware sues MERS, claims mortgage deceptionSome saw this coming in the last few weeks. Now all HELL is about to Break Loose.

This is one of the States I mentioned MERS has to watch…why? Because the “Co.” originated here & under Laws of Delaware…following? [see below].

Also look at the date this TM patent below was signed 3-4 years after MERS’ 1999 date via VP W. Hultman’s secretary Kathy McKnight [PDF link to depo pages 29-39].

New York…next!

Delaware Online-

Delaware joined what is becoming a growing legal battle against the mortgage industry today, charging in a Chancery Court suit that consumers facing foreclosure were purposely misled and deceived by the company that supposedly kept track of their loans’ ownership.

By operating a shadowy and frequently inaccurate private database that obscured the mortgages’ true owners, Merscorp made it difficult for hundreds of Delaware homeowners to fight foreclosure actions in court or negotiate new terms on their loans, the suit filed by the Attorney General’s Office said.

[DELAWARE ONLINE]

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CAL. AG DROPS OUT OF TALKS WITH BANKS: AMNESTY OFF THE TABLE

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EDITOR’S NOTE: California has approximately a 1/3 share of all foreclosures. So Harris’ decision to drop out of the talks is a huge blow to the mega banks who were banking (pardon the pun) on using it to get immunity from prosecution. The answer is no, you will be held accountable for what you did, just like anyone else. As I have stated before when the other AG’s dropped out of the talks (Arizona, Nevada et al), this growing trend is getting real traction as those in politics have discovered an important nuance in the minds of voters: they may have differing opinions on what should be done about foreclosures but they all hate these monolithic banks who are siphoning off the lifeblood of our society. And there is nothing like hate to drive voting.

This is a process, not an event. We are at the end of the 4th inning in a 9-inning game that may go into overtime. The effects of the mortgage mess created by the banks are being felt at the dinner table of just about every citizen in the country. The politics here is creating a huge paradox and irony — the largest source of campaign donations has turned into a pariah with whom association will be as deadly at the polls as organized crime.

The fact that so many attorneys general of so many states are putting distance between themselves and the banks means a lot. It means that the banks are in serious danger of indictment and conviction on criminal charges for fraud, forgery, perjury and potentially many other crimes.

IDENTITY THEFT: One crime that is being investigated, which I have long felt was a major element of the securitization scam for the “securitization that never happened” is the theft of identities. By signing onto what appeared to be mortgage documents, borrowers were in fact becoming issuers or pawns in the issuance of fraudulent securities to investors. Those with high credit scores were especially valued for the “cover” they provided in the upper tranches of the CDO’s that were “sold” to investors. An 800 credit score could be used to get a AAA  rating from the rating agencies who were themselves paid off to provide additional cover.

But it all comes down to the use of people’s identities as “borrowers” when in fact there was no “Lending” going on. What was going on was “pretend lending” that had all the outward manifestations of a loan but none of the substance. Yes money exchanged hands, but the real parties never met and never signed papers with each other. In my opinion, the proof of identity theft will put the borrowers in a superior position to that of the investors in suits against the investment bankers.

NO UNDERWRITING=NO LOAN: There was no underwriting committee, there was no underwriting, there was no review of the appraisal, there was no confirmation of the borrower’s income and there was no decision about the risk and viability of the so-called loan, because it wasn’t about that. The risk was already eliminated when they sold the bogus mortgage bonds to investors and thus saddled pension funds with the entire risk of loss on empty “mortgage backed pools.” So if the loan wasn’t paid, the players at ground level had no risk. Their only incentive was to get the signature of the borrower. That is what they were paid for — not to produce quality loans, but to produce signatures.

Little did we know, the more loans that defaulted, the more money the banks made — but they were able to mask the gains with apparent losses as an excuse to extract emergency money from the US Treasury using taxpayer dollars without accounting for the “loss” or what they did with the money. Meanwhile the gains were safely parked off shore in “off-balance sheet” transaction accounts.

The question that has not yet been asked, but will be asked as prosecutors and civil litigators drill down into these deals is who controls that off-shore money? My math is telling me that some $2.6 trillion was siphoned off (second level — hidden — yield spread premium) the investors money before the balance was used to fund “loans.”

When all is said and done, those loans will be seen for what they really were — part of the issuance of unregistered fraudulent securities. And you’ll see that the investors didn’t get any more paperwork than the borrowers did as to what was really going on. The banks want us to focus on the the paperwork when in fact it is the actual transactions involving money that we should be following. The paperwork is a ruse. It is faked.

NOTE TO LAW ENFORCEMENT: FOLLOW THE MONEY. IT WILL LEAD YOU TO THE TRUTH AND THE PERPETRATORS. YOUR EFFORTS WILL BE REWARDED.

California AG Harris Exits Multistate Talks
in News > Mortgage Servicing
by MortgageOrb.com on Monday 03 October 2011
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The multistate attorneys general group working toward a foreclosure settlement with the nation’s biggest banks suffered a blow Friday, when California’s Kamala Harris announced her departure from negotiations.

Harris notified Iowa Attorney General Tom Miller and U.S. Associate Attorney General Thomas Perrelli of her decision in a letter that was obtained and published by the New York Times Friday. According to the letter, Harris is exiting the talks because she opposes the broad scope of the settlement terms under discussion.

“Last week, I went to Washington, D.C., in hopes of moving our discussions forward,” Harris wrote. “But it became clear to me that California was being asked for a broader release of claims than we can accept and to excuse conduct that has not been adequately investigated.”

“[T]his not the deal California homeowners have been waiting for,” Harris adds one line later.

Harris, who earlier this year launched a mortgage fraud task force, says she will continue investigating mortgage practices – including banks’ bubble-era securitization activities – independent of the multistate group.

“I am committed to doing as thorough an investigation as is needed – and to taking the time that is necessary – to set the stage for achieving appropriate accountability for misconduct,” she wrote.

Harris also told Miller and Perrelli that she intends to advocate for legislation and regulations that increase transparency in the mortgage markets and “eliminate incentives to disregard borrowers’ rights in foreclosure.”

Harris’ departure is considered significant given the high number of distressed loans in California. In August, approximately one in every 226 housing units in the state had a foreclosure filing of some kind, according to RealtyTrac data.

Richard Zombeck: Mass Register John O’Brien’s Presentation Draws Crowd of Recorders in Atlantic City

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“I am stunned and appalled by the fact that America’s biggest banks have played fast and loose with people’s biggest asset — their homes. This is disgusting, and this is criminal,” O’Brien said.

Mass Register John O’Brien’s Presentation Draws Crowd of Recorders in Atlantic City

07/ 5/11 05:06 PM ET

Registers, registrars and recorders from across the country gathered in Atlantic City on Tuesday for the Annual Conference of The International Association of Clerks, Recorders, Election Officials and Treasurers (IACREOT).

Several of those attending made the trip specifically to see Massachusetts Register John O’Brien’s presentation on his findings of massive fraud he and Marie McDonnell of McDonnell Property Analytics, uncovered at the Massachusetts Southern Essex County Registry of Deeds

According to O’Brien, McDonnell discovered that 75 percent of the assignments in the registry are fraudulent.

The audit examined assignments of mortgage recorded in the Essex Southern District Registry of Deeds issued to and from JPMorgan Chase Bank, Wells Fargo Bank, and Bank of America during 2010. In total, 565 assignments related to 473 unique mortgages were analyzed.

McDonnell’s Report includes the following key findings:

  • Only 16% of assignments of mortgage are valid
  • 75% of assignments of mortgage are invalid.
  • 9% of assignments of mortgage are questionable
  • 27% of the invalid assignments are fraudulent, 35% are “robo-signed” and 10% violate the Massachusetts Mortgage Fraud Statute.
  • The identity of financial institutions that are current owners of the mortgages could only be determined for 287 out of 473 (60%)
  • There are 683 missing assignments for the 287 traced mortgages, representing approximately180,000 in lost recording fees per 1,000 mortgages whose current ownership can be traced.

You can Download the PDF of the report at http://www.homepreservationnetwork.com/cat_view/132-press-releases-and-memos or request a copy at www.mcdonnellanalytics.com

“My registry is a crime scene as evidenced by this forensic examination,” O’Brien said. “This evidence has made it clear to me that the only way we can ever determine the total economic loss and the amount damage done to the taxpayers is by conducting a full forensic audit of all registry of deeds in Massachusetts. I suspect that at the end of the day we are going to find that the taxpayers have been bilked in this state alone of over 400 million dollars not including the accrued interest plus costs and penalties. ”

After the presentation O’Brien was inundated by nearly 150 recorders asking questions and wanting to conduct investigations of their own.

“I’m a hard person to please,” said Kevin Harvey, O’Brien’s first Assistant. “This was nothing short of extraordinary.”

Jeff Thigpen, the register of deeds for Guilford County, North Carolina is another early trail blazer in this effort. While he did not attend the conference, I spoke with him on Wednesday.

“What [O’Brien] is pointing out in a fundamental way is that the assignments are fraudulent and people need to look at the findings. It goes to the heart of where we are in all this, Thigpen said, “These institutions were once transparent and trusted, we now have a system that stacks the deck in favor of the financial services industry.”

The report, along with the overwhelming response to it, comes in the midst of settlement talks with banks by the 50 attorney’s general. A settlement that to many homeowner advocates is unacceptable and premature based on how little is actually known about the overall depth and impact of the fraud.

New York Attorney General Eric Schneiderman is expected to lead opposition to what he called a “quick, cheap settlement” of the 50-state investigation into foreclosure practices.

Schneiderman launched his own investigation in April and has found the problem is much deeper. He said he was “stunned” to find the multi-state probe so lacking that no documents or witness depositions had been obtained.

“We have no leverage,” Schneiderman said in an interview with the Democrat and Chronicle.

O’Brien’s report could represent the catalyst to gaining that leverage.

Earlier this month O’Brien vowed not to record fraudulent documents, so the banks started submitting replacement documents, including five from Bank of America, all with new signature and notaries. An obvious and sloppy whitewash of the documents O’Brien initially refused.

“These lenders chose not to sign my affidavit, but rather to submit completely new documents,” O’Brien said. “I believe the Bank’s actions speak louder than words and show their consciousness of guilt.”

O’Brien also told homeowners in his district to check the records at his website to see if their home mortgage documentation has been robo-signed. He’s facilitating consumer protection complaints through the Massachusetts AG. He has provided letters that homeowners can print out and send to their servicers, demanding their full chain of title pursuant to federal law.

In an article today in the Boston Herald Edward Bloom of the Massachusetts Real Estate Bar Association said it’s not clear that robo-signed documents are invalid — or that O’Brien can legally reject them.

“Mr. O’Brien is grinding the real estate business to a halt and he doesn’t have any right to do that,” Bloom said.

But according to Nantucket attorney Jamie Ranney, who points out in a 15 page memo citing Massachusetts law, O’Brien not only has every right to refuse fraudulent assignments, he has a duty to his constituents to do so.

It is without question that a Register of Deeds has an important and fiduciary relationship and responsibility — especially in the Commonwealth where his position is elected — to all of his constituents, as well as to the public at large, all of whom rely and who should be able to rely on the Register’s efforts, supervision, and oversight in assuring, maintaining and promoting the integrity, transparency, accuracy, and consistency of a County’s land records.The Register’s work and supervision of his registry most often revolves around tasks and responsibilities that are generally ministerial in nature. The Register is typically concerned with the daily task of recording of legal document(s) and/or instrument(s) affecting real property where such document(s) and/or instrument(s) are properly presented to the registry for recording on the public land records.

However, the Register’s fiduciary duty goes well beyond these usual ministerial acts in circumstances where the Register has actual knowledge or a subjective good-faith belief/basis for believing that document(s) and/or instrument(s) being presented for recording or registration in the registry for which he has responsibility are fraudulent or otherwise not executed or acknowledged under applicable law. In such cases the Register may lawfully refuse to record such document(s) and/or instrument(s).

O’Brien is calling on the Massachusetts Attorney General to look into his finding and many of the attendees at last weeks conference are planning to do the same.

In a press release Wednesday, O’Brien said:

Once again I am asking Attorney General Martha Coakley and the other state Attorney’s General to follow the lead of New York Attorney General Eric Schneiderman and stop any settlement talks with the banks. The results of this report are only for my registry, but I can assure you that this type of criminal fraud is rampant across the nation. This leaves me to question why anyone would consider settling with these banks until we know the full extent of the damage that they have caused to the homeowners chain of title across this country and the amount of money they have bilked the taxpayers for their failure to pay recording fees.

Fortunately, as Georgetown Law Professor Adam Levetin points out in a recent piece at Credit Slips Massachusetts AG Martha Coakley has no problem going after banks and mortgage servicers. In fact Levetin says, “These settlements have received very little notice in the press, but I think they provide a real template for future AG settlements and are worth examining.”

As with any settlement, one has to be a bit a skeptical when multi-billion dollar industries are willing to part with substantial chunks of change. And since the settlement with the AGs looks like it would release lenders from future claims and hinder law suits on the part of the individual states, O’ Brien’s and Thigpen’s efforts in raising the awareness of this to the other recorders across the country couldn’t come at a better time.

Much like the $8.5 billion settlement with investors Bank of America is willing to part with that doesn’t really settle anything, whatever amount they’re willing to pay the AGs doesn’t look like it’s going to come near what’s really owed to the counties, states, and certainly not to the American people.

“I am stunned and appalled by the fact that America’s biggest banks have played fast and loose with people’s biggest asset — their homes. This is disgusting, and this is criminal,” O’Brien said.

Join us at www.homepreservationnetwork.com – Homeowners, attorneys, advocates and foreclosure experts working together

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Ohio Attorney General Fights Against Wall Street, Joining More Attorneys General

October 11, 2010

Ohio Attorney General Fights Against Wall Street

By MICHAEL POWELL

COLUMBUS, Ohio — Back East, at the corner of Broad and Wall Streets, the view is swell. The Dow is soaring, and bankers look pleased.

But here on East Broad Street, the mood is gloomier. At least 90,000 residential and commercial foreclosure notices will be filed in Ohio this year. Pension funds for teachers, secretaries and janitors have suffered grave losses. And multitudes of the unemployed in Ohio now speak of turning to prayer.

Ohio’s attorney general, Richard Cordray, might be seen as their pinstriped avenger.

“There’s a belief here that Wall Street is a fixed casino and it’s back in business, and we’re left holding the bag,” said Mr. Cordray, whose office overlooks East Broad. “It’s important for us to show we’ll go after a company that does wrong.”

Mr. Cordray in two years in office has demonstrated a willingness to sue early and often, filing lawsuits against global financial houses, rating agencies, subprime lenders and foreclosure scammers. He has wrested about $2 billion so far, a string of gilded pelts: a $475 million Merrill Lynch settlement, $400 million from Marsh & McLennan and $725 million from the American International Group.

Last week, he filed suit against GMAC Mortgage, accusing the loan servicer of filing fraudulent affidavits in hundreds of Ohio foreclosures.

His office has returned money to investors, pension funds, schools and cities. And he has directed millions to agencies fighting foreclosure.

“We see what Washington doesn’t: the houses lying vacant, the eyesore stripped for copper piping with mattresses out back,” Mr. Cordray says. “We bailed out irresponsible banks, but we forgot about everyone else.”

It speaks to this political age that such words are more rarely heard from federal regulators, who walk quietly and carry big bailout checks. Instead state attorneys general, in this case, a sandy-haired 51-year-old Democrat who sits about 400 miles from Washington, are giving full throat to popular outrage.

If Eliot Spitzer, the former New York attorney general, was the prototype of this breed, a handful of current ones, like Mr. Cordray, Martha Coakley of Massachusetts, Lisa Madigan of Illinois, Tom Miller of Iowa and Roy Cooper of North Carolina, lay claim to his mantle. Like recessionary scouts, they spot trouble, like a rapacious foreclosure-rescue operator, a predatory credit card company or a financial firm draining a pension fund.

Ms. Coakley secured millions of dollars in mortgage modifications from Countrywide Financial and reached a $102 million settlement with Morgan Stanley over its role in financing the subprime loans that fed the housing crash in Massachusetts.

“We were the first to go after predatory loans — we’re not waiting for federal agencies to act,” Ms. Coakley said.

Some express skepticism, suggesting that such lawsuits are emotionally pleasing but economically destructive. Former Senator Michael DeWine, a Republican who is running against Mr. Cordray, a Democrat, in the November election, has implied that Mr. Cordray wields an antibusiness cudgel. Better to rely on federal regulators, others argue, to constrain global corporations.

That strikes James E. Tierney, director of the National State Attorneys General Program at Columbia, as a bit beside the point.

“Is state action as effective as a federal regulator going after these companies? Absolutely not,” says Mr. Tierney, a former state attorney general for Maine. “But when regulators are too worried about giving offense, there’s no reason an enterprising attorney general can’t go in there,”

Born in Grove City, Ohio, Mr. Cordray was educated at Michigan State, Oxford and the University of Chicago Law School. A Supreme Court clerk, he also argued cases before the court. In 1987, he enjoyed a run as a five-time winner on the television show “Jeopardy!”

Somewhere along the way, he hankered for more. His father ran a program for mentally disabled people; his mother, a social worker, founded an organization of foster grandparents; and he wanted to enter the public sphere. Mr. Cordray began running for office.

His yearning often went unrequited; voters, he noted with a hike of the eyebrows, elected him state representative but rejected his run for Congress and an early attempt at state attorney general.

He shrugs.

“I really got my head pounded in over the years in politics,” Mr. Cordray says. “My wife thought I was nuts.”

Eventually, he downsized his ambitions, and ran successfully for Franklin County treasurer and later for state treasurer. And in 2008, he won a special election for attorney general.

Mr. Cordray is no William Jennings Bryan inveighing against the evils of monopoly capital. He can be eloquent about corporate misbehavior, in an eyes-downcast and soft-spoken fashion. (His language reads hotter on the page than it sounds in person.)

He is, however, tapping a populist tradition in Ohio. This is where politicians mounted challenges to the Standard Oil monopoly of John Rockefeller and where Senator John Sherman led a late 19th-century campaign to pass the Sherman Antitrust Act, which was the first law to require the federal government to investigate companies suspected of running cartels and monopolies.

Mr. Cordray carefully describes his allegiance to capitalism, although he says the financial crisis should explode forever the efficient-markets theory, popular with economists, that the best market is a self-correcting one. (Adam Smith’s “Wealth of Nations” shares space on his office bookshelf with books by the urbane Keynesian John Kenneth Galbraith.)

“The notion that banks will just get things right over time is perhaps true,” Mr. Cordray says. “But over what time period, and at what terrible cost to the individual American?”

Certainly, he has not minced words in pursuing a steady stream of cases against corporations.

He accused Marsh & McLennan of conspiring to eliminate competition in the insurance business by generating fictitious quotes. He denounced three credit rating firms, Fitch Ratings, Moody’s Investor Services and Standard & Poor’s, for giving inflated ratings to packages of troubled mortgages put together by the big investment houses. He says that Ohio pension funds lost close to half a billion dollars by investing in those triple-A rated securities.

And last October, he accused Bank of America officials of concealing critical facts in the acquisition of Merrill Lynch, even as that firm careened toward insolvency. Top bankers, he said, had not come remotely clean about the extent of the losses at Merrill and its bonuses.

The lawsuit against Bank of America was the first of its kind, although Mr. Cordray’s actions drew rather less press than a lawsuit filed months later by Attorney General Andrew M. Cuomo of New York. Mr. Cuomo, whose skill with the tactical leak, news release and the lawsuit is considerable, tends not to work closely with his fellow state attorneys general, say two officials from states other than Ohio.

Attorneys general are perhaps more successful at extracting large sums of money than in changing corporate behavior. A Goldman Sachs or Marsh & McLennan, to this view, tends to see such settlements as a cost of doing business.

“The settlements are large, but the changes in behavior don’t seem to be that large,” said Daniel C. Richman, a former federal prosecutor and professor at Columbia Law School. “These targets have massive amounts of money to pay off and continue on their merry way.”

Raise this criticism to Mr. Cordray and he nods in agreement.

“In an ideal world, if the S.E.C. had done its job, that would be much better,” he said. “Our settlements make up for the losses fractionally.”

As it happens, Mr. Cordray now faces a more existential threat. Legal challenges to corporate misbehavior are not proven electoral gold. This year, Ms. Coakley, a Democrat, fell to Republican Scott Brown in a race to fill the Senate seat of Edward M. Kennedy.

And polls show Mr. Cordray running behind in his race with Mr. DeWine. He’s no natural glad-hander — he apologizes when he realizes he has automatically extended his hand at a luncheon. More paradoxical, he finds himself at risk of being identified with “them,” which is to say the establishment that Ohio residents view as having failed them.

Again, he shrugs. He is not inclined to blame voters for his troubles.

“Politicians are kind of like adolescents, always looking in the mirror and assuming that’s what people see,” he says. “But there’s a great anxiety out there, a great unease about our future. Most people are hurting, and they don’t have the time to pay attention to us.”

Principal Reduction: A Step Forward by BofA, Wells Fargo

Editor’s Note: Better late than never. It is a step in the right direction, but 30% reduction is not likely to do the job, and waiting for mortgages to become delinquent is simply kicking the can down the road.

The political argument of a “gift” to these homeowners is bogus. They are legally entitled to the reduction because they were defrauded by false appraisals and predatory loan practices — fueled by the simple fact that the worse the loan the more money Wall Street made. For every $1,000,000 Wall Street took from investors/creditors they only funded around $650,000 in mortgages. If the borrowers performed — i.e., made their payments, Wall Street would have had to explain why they only had 2/3 of the investment to give back to the creditor in principal. If it failed, they made no explanation and made extra money on credit default swap bets against the mortgage.

For every loan that is subject to principal reduction, there is an investor who is absorbing the loss. Yet the new mortgage is in favor of the the same parties owning and operating investment banks that created the original fraud on investors and homeowners. THIS IS NO GIFT. IT IS JUSTICE.

—-EXCERPTS FROM ARTICLE (FULL ARTICLE BELOW)—–

New York Times

Policy makers have been hoping the housing market would improve before any significant principal reduction program was needed. But with the market faltering again, those wishes seem to have been in vain.

Substantial pressure came from Massachusetts, which won a significant suit last year against Fremont Investment and Loan, a subprime lender. The Supreme Judicial Court ruled that some of Fremont’s loans were “presumptively unfair.” That gave the state a legal precedent to pursue Countrywide.
The threat of a stick may be helping banks to realize that principal write-downs are in their ultimate self-interest. The Bank of America program was announced simultaneously with the news that the lender had reached a settlement with the state of Massachusetts over claims of predatory lending.

The percentage of modifications that included some type of principal reduction more than quadrupled in the first nine months of last year, to 13.2 percent from 3.1 percent, according to regulators.

Wells Fargo, for instance, said it had cut $2.6 billion off the amount owed on 50,000 severely troubled loans it acquired when it bought Wachovia.

March 24, 2010

Bank of America to Reduce Mortgage Balances

By DAVID STREITFELD and LOUISE STORY

Bank of America said on Wednesday that it would begin forgiving some mortgage debt in an effort to keep distressed borrowers from losing their homes.

The program, while limited in scope and available by invitation only, signals a significant shift in efforts to deal with the millions of homeowners who are facing foreclosure. It comes as banks are being urged by the White House, members of Congress and community groups to do more to stem the tide.

The Obama administration is also studying whether to provide more help to people who owe more on their mortgages than their homes are worth.

Bank of America’s program may increase the pressure on other big banks to offer more help for delinquent borrowers, while potentially angering homeowners who have kept up their payments and are not getting such aid.

As the housing market shows signs of possibly entering another downturn, worries about foreclosure are growing. With the volume of sales falling, prices are sliding again. When the gap increases between the size of a mortgage and the value that the home could fetch in a sale, owners tend to give up.

Cutting the size of the debt over a period of years, however, might encourage people to stick around. That could save homes from foreclosure and stabilize neighborhoods.

“Banks are willing to take some losses now to avoid much greater losses later if the housing market continues to spiral, and that’s a sea change from where they were a year ago,” said Howard Glaser, a housing consultant in Washington and former government regulator.

The threat of a stick may be helping banks to realize that principal write-downs are in their ultimate self-interest. The Bank of America program was announced simultaneously with the news that the lender had reached a settlement with the state of Massachusetts over claims of predatory lending.

The program is aimed at borrowers who received subprime or other high-risk loans from Countrywide Financial, the biggest and one of the most aggressive lenders during the housing boom. Bank of America bought Countrywide in 2008.

Bank of America officials said the maximum reduction would be 30 percent of the value of the loan. They said the program would work this way: A borrower might owe, say, $250,000 on a house whose value has fallen to $200,000. Fifty thousand dollars of that balance would be moved into a special interest-free account.

As long as the owner continued to make payments on the $200,000, $10,000 in the special account would be forgiven each year until either the balance was zero or the housing market had recovered and the borrower once again had positive equity.

“Modifications are better than foreclosure,” Jack Schakett, a Bank of America executive, said in a media briefing. “The time has come to test this kind of program.”

That was the original notion behind the government’s own modification program, which was intended to help millions of borrowers. It has actually resulted in permanently modified loans for fewer than 200,000 homeowners.

The government program, which emphasizes reductions in interest rates but not in principal owed, was strongly criticized on Wednesday by the inspector general of the Troubled Asset Relief Program for overpromising and underdelivering.

“The program will not be a long-term success if large amounts of borrowers simply redefault and end up facing foreclosure anyway,” the inspector general, Neil M. Barofsky, wrote in his report. One possible reason is that even if they get mortgage help, many borrowers are still loaded down by other kinds of debt like credit cards.

Bank of America said its new program would initially help about 45,000 Countrywide borrowers — a fraction of the 1.2 million Bank of America homeowners who are in default. The total amount of principal reduced, it estimated, would be $3 billion.

The bank said it would reach out to delinquent borrowers whose mortgage balance was at least 20 percent greater than the value of the house. These people would then have to demonstrate a hardship like a loss of income.

These requirements will, the bank hopes, restrain any notion that it is offering easy bailouts to those who might otherwise be able to pay. “The customers who will get this offer really can’t afford their mortgage,” Mr. Schakett said.

Early reaction to the program was mixed.

“It is certainly a step in the right direction,” said Alan M. White, an assistant professor at Valparaiso University School of Law who has studied the government’s modification program.

But Steve Walsh, a mortgage broker in Scottsdale, Ariz., who said he had just abandoned his house and several rental properties, called the program “another Band-Aid. It probably would not have prevented me from walking away.”

Even before Bank of America’s announcement, reducing loan balances was growing in favor as a strategy to deal with the housing mess. The percentage of modifications that included some type of principal reduction more than quadrupled in the first nine months of last year, to 13.2 percent from 3.1 percent, according to regulators.

Few of these mortgages were owned by the government or private investors, however. Banks tended to cut principal only on mortgages they owned directly. Wells Fargo, for instance, said it had cut $2.6 billion off the amount owed on 50,000 severely troubled loans it acquired when it bought Wachovia.

Bank of America said it would be offering principal reduction for several types of exotic loans. Some of the eligible loans are held in the bank’s portfolio, but the program will also apply to some loans owned by investors for which Bank of America is merely the manager.

The bank developed the program partly because of “pressure from everyone,” Mr. Schakett said. Even the investors who owned the loans were saying “maybe we should be doing more,” he said.

Substantial pressure came from Massachusetts, which won a significant suit last year against Fremont Investment and Loan, a subprime lender. The Supreme Judicial Court ruled that some of Fremont’s loans were “presumptively unfair.” That gave the state a legal precedent to pursue Countrywide.

“We were prepared to bring suit against Bank of America if we had not been able to reach this remedy today, which we have been looking for for a long time,” said the Massachusetts attorney general, Martha Coakley.

Bank of America agreed to a settlement on Wednesday with Ms. Coakley that included a $4.1 million payment to the state.

Reducing principal is widely endorsed, in theory, as a cure for foreclosures. The trouble is, no one wants to absorb the costs.

When the administration announced a housing assistance program in the five hardest-hit states last month, officials explicitly opened the door to principal forgiveness. Despite reservations expressed by the Treasury, the White House and Housing and Urban Development officials have continued to study debt forgiveness in areas with lots of so-called underwater homes, according to two people with knowledge of the matter.

On a national scale, such a program risks a political firestorm if the banks are unable to finance all the losses themselves. Regulators like the comptroller of the currency and the Federal Reserve have been focused on maintaining the banks’ capital levels, which could be hurt by large-scale debt forgiveness.

“You have to be very careful not to design a program that would change people’s fundamental behavior across the country in a destabilizing way or would be widely perceived as unfair to people who are continuing to pay,” Michael S. Barr, an assistant secretary of the Treasury, said early this year.

Policy makers have been hoping the housing market would improve before any significant principal reduction program was needed. But with the market faltering again, those wishes seem to have been in vain.

Bank of America’s announcement came within hours of a fresh report that underscored the renewed weakness. Sales and prices are dropping, leaving even more homeowners underwater.

Sales of new homes fell in February to their lowest point since the figures were first collected in 1963, the Commerce Department said. Sales are about a quarter of what they were in 2003, before the housing boom began in earnest.

“It’s shocking,” said Brad Hunter, an analyst with the market researcher Metrostudy. “No one would ever have imagined it would go this low.”

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