Bank of America announces rescue plan for Countrywide borrowers
A massive homeowner rescue plan announced Monday by the Bank of America will commit $3.5 billion in relief for an estimated 125,000 Californians who are having trouble making payments on subprime loans and other risky mortgages from Countrywide Home Loans.
Bank of America bought Countrywide for $4 billion July 1 after the Calabasas-based home loan giant, among the largest subprime lenders in the state, collapsed under the weight of mounting defaults and foreclosures.
The bank’s “Home Ownership Retention Program for Countrywide Customers” was devised by California and 10 other states to settle predatory lending lawsuits filed against Countrywide. The plan could also set a precedent for other banks whose books are weighed down by defaulting mortgages.
“This is going to help some families,” said California Attorney General Jerry Brown, “but the overall economy is in the hands of God at this point.” Brown helped lead the settlement negotiations.
The program — described by the bank as $8.4 billion and the state attorney general as $8.6 billion — allocates up to $3.5 billion to help California Countrywide borrowers renegotiate their mortgages; the figure assumes every borrower participates. Nearly 400,000 customers of Countrywide will be eligible nationwide.
The bank said the program is for borrowers who are, or who are likely to fall seriously behind on their loans as the result of loan features such as interest rate resets or payment changes. For some borrowers, interest rates could go as low as 2.5 percent. The program includes suspension of foreclosures, reduced interest payments and for select borrowers, reduction of principal balances.
Shares of Bank of America on Monday declined 6.55 percent after the company announced a 68 percent drop in third quarter profit and said it would halve its dividend and sell $10 billion shares of common stock.
The lawsuit, which also named related companies Countrywide Financial and Full Spectrum Lending, accused Countrywide of deceptively marketing risky mortgages to borrowers who didn’t understand them.
Brown said Monday’s settlement could provide a model for other banks saddled with troubled home loans. The settlement “certainly” sets a precedent for other banks to follow, said Brown, although he noted that some banks don’t have the deep pockets Bank of America has and may have trouble coming up with the money.