Right, BOFA ponies up $8.7 B because it was the victim of your mythical anti red lining whip wielded by Barney Frank LOL. No wonder Republikans are so incompetent, you guys are unbelievably stupid.
Bank of America To Modify Mortgages From Countrywide
By Dina ElBoghdady
Washington Post Staff Writer
Tuesday, October 7, 2008; D03
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."
Bank of America hammered out the agreement with several states that accused Countrywide of deceptive predatory lending practices. The attorneys general in California, Florida and Illinois had initiated lawsuits and took the lead in negotiating.
Tom Miller, Iowa's attorney general, said Bank of America started talking to the states in July about yesterday's agreement. He said the settlement could serve as a role model for other loan-modification programs because it is wide and systematic.
Under the deal, the first-year payments of principal, interest, taxes and insurance will be targeted to equal 34 percent of the borrower's income, or 25 percent of income for borrowers for whom taxes and insurance are not escrowed.
"This has the potential of being a game changer," Miller said. "We're not sure until we see how it works."
The modification plan is more aggressive than the one recently started by the Federal Deposit Insurance Corp. after it took over California-based IndyMac and decided to restructure 25,000 loans, said Benjamin Diehl, a California deputy attorney general.
For instance, the FDIC deferred principal payments on option adjustable-rate mortgages, whereas Bank of America agreed to permanently lower the principal on those loans, Diehl said. Borrowers can also get an interest rate reduction on top of that.
In the recent past, consumer advocates have railed against lenders for promising under pressure to modify loans but doing nothing.
Jerry Brown, California's attorney general, said this settlement will be closely monitored and enforced in the months ahead.
"We will be on it," he said.
Brown's office described the settlement as the largest in a predatory lending case, dwarfing a $484 million settlement with Household Finance Corp. in 2002.
Bank of America did not admit any wrongdoing and was not required to pay any fines.
Although the bank reported yesterday that losses on bad loans are dragging down its profit, the cost of this program was covered by money the bank already accounted for when it purchased Countrywide, according to Joe Price, the bank's chief financial officer. "The cost of restructuring these loans is within the range of losses we estimated," he said in a statement.
Guy Cecala, publisher of Inside Mortgage Finance, said the settlement makes financial sense for Bank of America. If about 20 percent of these troubled loans went into foreclosure, which is the going industry rate at this point, Bank of America would be faced with $22 billion in losses, Cecala said.
As of yesterday, 12 states had joined the settlement and others have the opportunity to do so. Those states that participate will receive a share of $150 million set aside for foreclosure prevention efforts and $70 million to ease the transition of people who are losing their homes to foreclosure. |
