Bank of America To Modify Mortgages From Countrywide
Tuesday, October 7, 2008
Bank of America has agreed to rework the terms of up to 400,000 distressed mortgages nationwide starting Dec. 1 to settle lawsuits and investigations pending against one of its subsidiaries.
The settlement could be the largest in predatory lending history. It could save $8.7 billion for customers of Countrywide Financial, the nation's largest mortgage lender before it was hobbled by subprime loans and bought by Bank of America.
Only Countrywide customers who took out loans on their primary residences before Dec. 31 will be eligible for the restructuring, which could include dramatically lowering the interest or principal on their mortgages.
Bank of America will suspend foreclosure proceedings against borrowers who are likely to qualify.
About 8,000 homeowners in Virginia, 7,000 in Maryland and 500 in the District could benefit, said Dan Frahm, a Bank of America spokesman. The settlement covers customers whose accounts are managed by Countrywide, even if they originally took out the loan from another lender.
The borrowers are those who took out subprime loans because they had less-than-perfect credit or little cash, as well as people with option adjustable-rate mortgages. Those mortgages give borrowers the option of how much to pay each month.
Those two loan types are at the heart of the mortgage crisis that spread and crippled global financial markets. During the housing boom, they were wildly popular, fueling Countrywide's success. But as the housing market tanked, these loans went bad at an alarming rate, and the fallout continues.
Although yesterday's agreement targets borrowers who have missed or will soon miss payments, not all of them will qualify. Some might not be able to afford a loan even if it comes with more affordable terms.
Christopher Whalen, a senior vice president at Institutional Risk Analytics, a consulting firm, voiced skepticism. The history of loan modifications is "not that bright," he said, given that many who receive help default again.
"There's a large public relations component here," Whalen said. "There may be a certain percentage of the population in this pool that truly benefits from all this and that's great. But when you look at it from larger perspective, that's when the statistics kick in."
Some housing counselors were more hopeful, encouraged by Bank of America's handling of bad loans since it acquired Countrywide in July.
"Countrywide has been much more responsive in the past six months," said Marcia J. Griffin, president of HomeFree-USA, a local nonprofit group. "There's been an openness and willingness to work with organizations like ours since Bank of America took over."