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October 2008
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Mortgage lender Countrywide Financial Corporation has agreed to provide approximately $8 billion in home loan and foreclosure relief to as many as 397,000 homeowners across the country including more than 5,000 in North Carolina, Attorney General Roy Cooper said.  Eleven states including North Carolina reached the agreement late Friday with Charlotte-based Bank of America, which acquired Countrywide in July of 2008. The foreclosure relief agreement is expected to provide $71 million in reduced home loan payments to more than 5,000 North Carolina borrowers.  “Thousands of North Carolinians who are struggling to pay their mortgages and keep their homes will get relief thanks to this agreement,” Cooper said.  “Other mortgage lending companies need to step up to the plate with similar plans to help homeowners facing foreclosure.”

Under the settlement, Countrywide has agreed to modify loans for eligible borrowers so they will be better able to afford to keep their homes.  Home mortgage modifications may include an automatic freeze or reduction in interest rates, conversion to fixed-rate loans, and refinancing or reduction of the principal owed. Under the modifications, first-year payments of principal, interest, taxes and insurance will be targeted to equal 34 percent of the borrower’s income.  Countrywide has also agreed to stop making problematic high-cost mortgages and payment option adjustable rate mortgages.

In addition, Bank of America and Countrywide will pay $150 million to participating states to help consumers who have already lost their homes to foreclosure. Bank of America and Countrywide will also pay up to $70 million for relocation assistance to borrowers unable to stay in their homes, and will waive up to $60 to $80 million in prepayment penalties and default fees.  The settlement resolves allegations that Countrywide used unfair and deceptive tactics in making and servicing mortgage loans. As a result, homeowners were often stuck with unfair loans they couldn’t afford. Countrywide is the largest provider of subprime home loans in the United States.

Countrywide is expected to start the loan modification program by Dec. 1, 2008, and the company has said that it will reach out to eligible customers by that date. Countrywide has also said that it will halt foreclosure proceedings against homeowners who are likely to qualify for loan modifications under the agreement.  North Carolinians who are facing foreclosures and who are not Countrywide borrowers can get free help by calling the HOPE Hotline toll-free at 888-995-HOPE 24 hours a day, seven days a week.  Along with North Carolina, attorneys general in Arizona, California, Connecticut, Florida, Illinois, Iowa, Michigan, Ohio, Texas and Washington are participating in the agreement with Countrywide.

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More than 120,000 struggling California homeowners could see their monthly mortgage payments lowered after Bank of America Corp. agreed to provide $3.5 billion in loan and foreclosure relief to settle lawsuits it inherited with its takeover of Countrywide Financial Corp. The pact stems from cases filed earlier this year by California and other states, alleging Countrywide, based in Calabasas (Los Angeles County), used misleading advertising and unfair business practices to dupe customers into taking out home loans they couldn’t afford. Bank of America acquired Countrywide, along with its outstanding legal challenges, in July. To settle with all the states involved, BofA said it would provide up to $8.4 billion in interest rate and principal reductions on as many as 400,000 mortgages nationwide plus more than $200 million in aid for those who have suffered or face foreclosure. “Today, I’m announcing the biggest mortgage loan modification in American history,” California Attorney General Jerry Brown said at a press conference Monday morning. “Bank of America settled because their new entity, Countrywide, was guilty of massive irregularities.” His office claimed the agreement represents the largest predatory lending settlement ever, dwarfing a $484 million settlement with Household Finance Corp. in 2002. But the bulk of the settlement consists of loan reductions, not outright payments, and the total figures assume every eligible borrower participates and investors who control the loans cooperate.

‘This is a beginning’

The settlement terms are “not as impressive as Brown’s press release at least indicates,” said Robert Gnaizda, general counsel with the Greenlining Institute, a Berkeley advocacy group that presses businesses to serve low-income communities. “This is a beginning but not an extraordinary settlement.” He said the bank would have performed many of those workouts voluntarily for several reasons, including to qualify for aid under the federal bailout bill passed last week and to take advantage of programs created by the Housing Economic Recovery Act of 2008 in July. BofA, for instance, has said it will try to refinance some customers into fixed-rate FHA mortgage loans under the Hope for Homeowners program included in the latter bill. Through it, banks have to write down existing mortgages to 90 percent of the new appraised value of the home, but the FHA agrees to cover the unpaid balance if the loans go into foreclosure. Gnaizda also criticized BofA for not declaring a moratorium on foreclosures and for not establishing a system for providing borrowers in-home counseling on their modification options. BofA spokesman Dan Frahm defended the settlement. “We think it’s a program that provides more solutions than ever before to assist troubled borrowers and put them on the path to sustained homeownership,” he said. Frahm said the bank won’t initiate or proceed with any foreclosure sales until it determines whether borrowers will qualify for the modification program, which goes into effect Dec. 1. The Association of Community Organizations for Reform Now, another group representing low-income communities and an outspoken proponent of loan modifications for troubled borrowers, lauded Monday’s announcement. “More than any action of Congress, and certainly more than any voluntary industry action promoted by the Bush administration, today’s settlement is a new model for solving the foreclosure crisis by litigating against the predatory products peddled by huge lenders and winning direct relief for borrowers who are struggling with their mortgages,” President Maude Hurd said in a prepared statement.

Some will not qualify

In itself, however, the settlement doesn’t promise significant relief for a real estate sector still awash in foreclosures, said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange.

“Relative to the overall size of the market, (it’s) not that big,” he said. “Fundamentally, it’s not going to change anything.” Frahm and Brown both acknowledged that the deal won’t even allow all of Countrywide’s customers to avoid foreclosure, as some won’t qualify for the workouts. The loan modification program covers subprime and pay-option adjustable rate mortgage loans initiated between Jan. 1, 2004, and Dec. 31, 2007. To qualify, borrowers generally must: be 60 or more days late on their payments or face a loan reset that is likely to make them seriously delinquent, meet certain income requirements based on the size of the mortgage, still owe at least 75 percent of the current value of the home and occupy the property in question. The settlement will affect borrowers differently based on the type of loan they took out: Those with certain types of adjustable rate loans, in which the interest rate and monthly payments jump after a preliminary period, may receive an extension of the introductory rate. Customers with so called pay-option ARMs, which allow borrowers to choose a minimum payment that doesn’t cover interest and thus allows the total owed to grow each month, could have their loan principal reduced to 95 percent of the home’s current value. Borrowers with high interest rate fixed loans may be eligible for rate reductions. Some qualified borrowers’ loans will be adjusted automatically, others will receive notices that they could qualify for a modification beginning 90 days before their loans reset, said Kathrin Sears, California’s supervising deputy attorney general, who helped negotiate the settlement. “We’re trying to address those in the most serious distress first,” she said. Attorneys general in 10 other states are participating in the settlement, including Arizona, Connecticut, Florida, Illinois, Iowa, Michigan, North Carolina, Ohio, Texas and Washington. Brown’s original lawsuit named Countrywide’s former Chief Executive Officer Angelo Mozilo and former President David Sambol, claiming they had encouraged the loosening of lending standards to allow a surge in issued loans. The executives were not included in the settlement, and Brown plans to continue to prosecute those cases.

Highlights of the BofA settlement

Bank of America agreed to provide up to $8.68 billion of home loan and foreclosure relief to settle loan abuse lawsuits against Countrywide, which it acquired in July. If every eligible borrower and investor participates, the loan modification program will provide Californians with $3.5 billion, as follows:

– $3.4 billion worth of reduced interest payments and principal.

– Waiver of late fees of up to $33.6 million.

– Waiver of prepayment penalties of as much as $25.6 million for those who receive modifications, pay off or refinance their loans.

– $27.9 million for borrowers who are 120 or more days delinquent or whose homes already have been foreclosed.

– Around $25.2 million for borrowers who can’t afford monthly payments under the modification program and eventually lose their homes to foreclosure.

Source: Office of the attorney general, state of California

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