My guess is that they're writing off the full value of any bad loans, which reduces their taxable revenue from other sources. That must work out better for them then trying to get the loans paid back at reduced rates. Maybe they write off all of the high-rate interest for a 30 year loan period, which is way more than the likely income from a lower-rate loan over the same period. Nevermind that they could never actually collect the whole term's interest at the high rate.

Whenever you're trying to figure out BoA, you have to keep in mind a few rules: they cheat, they steal from their customers, they lie to everyone including the government, and they do whatever gives them the most profit. You can assume their actions make perfect sense in light of those rules, if you knew the the accounting.