Calculated Risk ^[1] has a fascinating and detailed look at an UNSOLICITED Principal Reduction Loan Modification ^[2] (pdf) offer from BofA.

A few background details:

The homeowner bought the house in May 2005 for $420,000.

The homeowner refinanced in March 2006. This included a negatively amortizing adjustable rate mortgage (NegAM ARM) first with BofA for $392,000, and a 2nd with IndyMac for $49,000. (Total = $441,000)

For personal reasons, the homeowner was no longer able to make the payment, and is now delinquent. They were offered a HAMP modification, but apparently did not respond. This unsolicited offer is from a BofA internal program.

The balance due on the NegAM ARM with BofA is currently $429,000 and the homeowner owes another $17,000 in delinquent payments. (Total due is $446,000 for 1st, not including 2nd)

The house would probably sell for about $325,000.

The offer from BofA:

BofA is offering to reduce the principal (including delinquent payments) to $334,400.

The new loan would be a fixed rate at 5.5%, with the same term (about 25 years left), but amortized over 40 years. In 25 years the homeowner would owe a balloon payment of $198,000.

The current minimum payment on the NegAM ARM is $1,966 (not including taxes and insurance), and the payments on the new loan would be $1,725 per month (principal and interest).

There is no mention of the 2nd in the offer.