NEW YORK As part of a settlement with state
attorneys general that could be worth as much as $8.6 billion,
Bank of America Corp (BAC.N) said on Monday it would cut
interest rates and principal on some troubled mortgages
originated by Countrywide Financial Corp.
Bank of America, which bought Countrywide in July, reached
a deal with attorneys general representing 11 states in which
it will offer more affordable and sustainable mortgage payments
for borrowers who had financed their homes with subprime loans
or adjustable-rate mortgages serviced by Countrywide.
"This is good," said Christopher Whalen, managing director
at Institutional Risk Analytics, a provider of analysis and
ratings for banks. "I hate to say we'll need to see a lot more
of this, but we will. Banks have no choice because the
economy's getting so flat. They're going to become increasingly
aggressive about keeping homeowners in their homes."
The Countrywide settlement will likely become the largest
predatory lending settlement in history, the California
attorney general's office said in a statement.
"With this settlement, homeowners will receive direct
relief from the catastrophic damage caused by Countrywide,"
said California Attorney General Edmund Brown in a statement.
"Countrywide's lending practices turned the American dream
into a nightmare for tens of thousands of families by putting
them into loans they couldn't understand and ultimately
couldn't afford," he said.
States including West Virginia, California, Connecticut and
Illinois had sued Countrywide over its business practices,
alleging that the mortgage lender had made risky and costly
loans to consumers who could not afford them.
ONCE NO. 1
Countrywide was once the largest U.S. mortgage lender
before being acquired for about $4 billion in stock by Bank of
America as its risky subprime mortgage loans began to fail.
"We have committed significant resources and developed
innovative programs to help as many Countrywide customers as
possible stay in their homes," Barbara Desoer, president of
Bank of America Mortgage, Home Equity and Insurance Services,
said in a statement.
Bank of America shares fell $1.79, or 5.2 percent, to
$32.69 in midday New York Stock Exchange trading. The KBW banks
index .BKX was down 6.1 percent.
Whalen said Bank of America's stock price decline was
linked to general concern about the health of U.S. financial
institutions rather than the settlement.
"Most people would probably view this (settlement) as a
neutral to a positive," said Whalen. It could cut profits, he
said, but "one would hope that the loss rates would be lower
and you'd keep more people in their homes and paying their
The deal will enable eligible subprime and pay-option
mortgage borrowers to avoid foreclosure by obtaining a modified
and more affordable loan. The loans covered by the settlement
are among the riskiest and highest defaulting loans at the
center of America's foreclosure crisis.
Pay-option mortgages allowed borrowers to pay only a
fraction of interest and principal owed each month, allowing
the loan balance to increase.
The deal applies to people who financed their homes with
subprime loans or pay-option adjustable-rate mortgages serviced
by Countrywide that originated before Dec. 31, 2007. Some
400,000 borrowers could be helped by the agreement.
The program centers around a loan modification process,
valued up to $8.4 billion, aimed at providing relief to
eligible borrowers who are "seriously delinquent" or are likely
to become so due to loan features, such as rate resets or
About 12 percent of the eligible loans are held by Bank of
America and the cost of restructuring these loans is "within
the range of losses we estimated when we acquired Countrywide,"
Bank of America said.
Under the program, eligible Countrywide-serviced customers
who occupy the home as their primary residence will not be
charged loan modification fees, and prepayment penalties for
subprime and pay-option ARM loans will be waived, the bank
Some $150 million has been set aside for borrowers in
certain states who suffered foreclosure or are at serious risk
of foreclosure, the bank said.
An additional $70 million has been set aside for relocation
assistance to borrowers unable to retain their homes.
Attorneys general in 11 states, including Arizona,
California, Connecticut, Florida, Illinois, Iowa, Michigan,
North Carolina, Ohio, Texas and Washington, are participating
in the settlement.
The settlement does not include Angelo Mozilo, the former
chairman and chief executive of Countrywide Financial
Corporation or David Sambol, formerly the president of
Countrywide Home Loans and president and chief operating
officer of Countrywide Financial Corporation.
(Reporting by Savio D'Souza in Bangalore and Chelsea Emery
in New York; Editing by Brian Moss and Maureen Bavdek)