Countrywide to modify up to $16 billion mortgages

By Jonathan Stempel

NEW YORK (Reuters) - Countrywide Financial Corp CFC.N, the largest U.S. mortgage lender, offered on Tuesday to refinance or modify up to $16 billion in adjustable-rate mortgages through the end of 2008 to help about 82,000 borrowers who face higher payments stay in their homes.

Countrywide plans to offer new mortgages to 52,000 subprime borrowers with $10 billion in home loans. It also plans to modify $4 billion in loans for 20,000 prime and subprime borrowers who cannot refinance, and $2.2 billion in mortgages for 10,000 subprime borrowers who are already delinquent.

"It sounds positive," said Kevin Stein, associate director of the California Reinvestment Coalition, a San Francisco group that has fought against unfair lending practices.

"Our frustration is that many financial institutions are saying the right things, but we're not seeing the results on the ground. Eighty-two thousand customers is a small number compared with the hundreds of thousands industrywide who face foreclosure."

Rates on 2 million mortgages will rise by the end of 2008, and one-fourth of affected homes may face foreclosure, according to the U.S. Department of Housing and Urban Development.

Last week, Treasury Secretary Henry Paulson called the nation's housing crisis "the most significant current risk" to the economy.

Countrywide's program covers so-called 2/28 and 3/27 subprime mortgages, which carry rates that are fixed for two or three years, and float thereafter. Industrywide, many such loans carried low initial "teaser" rates.

Steve Bailey, a Countrywide senior managing director of loan administration, said on a conference call that action was needed because of a "slow but steady, very unpredictable" decline in home prices that may not be over, and because borrowers are finding it more difficult to obtain credit.

"Those two events were significant, and those changed the landscape," he said. "That's the 'why now.'"

Calabasas, California-based Countrywide said it has helped 31,000 subprime borrowers convert their loans into more than $5 billion in prime, fixed-rate loans this year. Subprime mortgages go to people with weaker credit.

The company has said it services $1.46 trillion in home loans. As of June 30, payments were at least 30 days late on one in five "nonprime" loans it serviced.

"Unprecedented times call for unprecedented remedies," Chief Operating Officer David Sambol said in a statement.

SMALLER, SAFER LOANS

Like many rivals, Countrywide has been criticized for feeding the housing slump by putting Americans into mortgages they could not afford. It made $468.2 billion in mortgage loans in 2006, including $40.6 billion in "nonprime" mortgages.

Investors have also criticized Chief Executive Angelo Mozilo for selling well over $100 million in Countrywide stock as the housing boom was cresting.