NEW YORK (Reuters) - Bank of America Corp BAC.N said on Tuesday it plans to stop offering some riskier mortgage loans after it finishes buying Countrywide Financial Corp CFC.N, the largest U.S. mortgage lender.
The second-largest U.S. bank said the combined businesses will not offer “option” adjustable-rate mortgages, which let borrowers pay less than the interest due.
It also plans to “significantly curtail” other non-traditional mortgages, including some loans that don’t require borrowers to fully document income or assets.
The Charlotte, North Carolina-based bank also said it will limit prepayment penalties and offer enhanced protections on interest-only and “hybrid” adjustable-rate mortgages. The latter carry fixed interest rates for a period of time, typically five years, and then adjust.
Bank of America will continue to offer loans eligible for purchase by mortgage financiers such as Fannie Mae FNM.N and Freddie Mac FRE.N, as well as adjustable-rate mortgages, and mortgages with a 10-year minimum interest-only period.
“We recognize this tightening, by definition, restricts the availability of credit to some borrowers,” said Bruce Hammonds, Bank of America’s global consumer credit executive. “However, this will help ensure that those who get loans can afford to repay them.”
In January, Bank of America agreed to buy Countrywide, in a transaction valued Monday at about $4 billion. Many critics have said lending practices at Calabasas, California-based Countrywide were a major contributor to the nation’s housing crisis.
The U.S. Federal Reserve on Tuesday is holding in Chicago the first of three public hearings concerning the planned purchase. The Fed also scheduled hearings for April 28 and 29 in Los Angeles. Bank of America expects to close the merger in the third quarter.
Reporting by Jonathan Stempel, editing by Dave Zimmerman
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