Facing a lawsuit over deceptive mortgage practices, Countrywide Financial Corp., now a Bank of America Corp. subsidiary, has agreed to modify tens of thousands of loans to keep people in 11 states from losing their homes. Borrowers who have Countrywide Financial mortgages they can’t afford may see a reduction of their interest rates or have the loan principal lowered. Some might qualify for having to pay only the interest on their loans for a decade. Even folks who can’t afford to keep their homes with such changes will be able to get help moving to a new home. Illinois Attorney General Lisa Madigan and California Attorney General Jerry Brown Jr. are responsible for negotiating this settlement. In addition to California and Illinois, nine other states have also joined the settlement. The other states joining the settlement are Arizona, Connecticut, Florida, Iowa, Michigan, North Carolina, Ohio, Texas and Washington. Other states can still sign on.
The Countrywide effort is the most comprehensive, mandatory loan workout program since the mortgage crisis began last year. Congress has proposed various programs, but those measures did not make it into the final $700 billion government bailout. Since taking control of housing agents, Fannie Mae and Freddie Mac, the Federal Housing Finance Agency has said it is looking at expanding modifications on the loans that Fannie and Freddie own or guarantee.
If all 50 states were to join, the Countrywide settlement could provide as much as $8.7 billion in relief to 400,000 borrowers. The settlement applies to folks who obtained their mortgages through Countrywide Financial Corp., which Charlotte, North Carolina-based Bank of America purchased in June, at the same time Illinois and California sued the company.
Bank of America will launch the new mortgage aid program in December. The mortgage aid includes revising customers’ payments so they don’t exceed 34% of income. Other options include reducing interest rates and adjusting principal so that borrowers don’t wind up actually losing equity under some payment plans. Countrywide will not charge loan modification fees and will waive prepayment penalties. This is the largest predatory lending settlement in history, far exceeding the $484 million deal struck in 2002 with the Household Finance Corporation. The settlement could serve as a model for steps that other lenders could take to make up for misleading mortgage practices. The agreement involves no tax money, but will help folks keep their homes and keep money flowing to lenders.
Source: CBS News
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