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Bank of America has agreed to modify thousands of mortgages in 11 states as part of a settlement worth more than $8.4 billion in a suit challenging the practices of Countrywide Financial Corp., which the giant bank acquired in July. California Attorney General Jerry Brown and officials from 11 states have sued Countrywide over deceptive lending practices they say placed borrowers in such risky loans they had little chance of avoiding foreclosure.
The workout plan, announced today, is likely the largest one of its kind and is expected to relieve borrowers holding $3.5 billion of mortgage debt in California, the state with the largest share in the settlement agreement, Brown said.
City Attorney Mike Aguirre in July added the city of San Diego to the list of governments suing the mortgage company. While this settlement doesn’t include the city’s suit, Aguirre is confident he will soon have a settlement, Legal Newsline reported.
Aguirre filed his suit in July, asking the court to stop foreclosure proceedings on loans in the city of San Diego that have a specific set of characteristics; including those with a 100 percent loan-to-value ratio, a teaser rate that is at least 3 percent less than the rate it would eventually reset to, and a payment that would push the borrower’s debt-to-income ratio over 50 percent. At a hearing at Harvard University last month, Aguirre was a proponent for loan modification as part of any settlement, not just financial awards to borrowers who’d been foreclosed upon.
He talked to Legal Newsline last night after word of the settlement leaked to several outlets:
Aguirre’s lawsuit, filed on behalf of San Diego, a California city beset by foreclosures, has not yet directly settled with Bank of America.
“We will be,” Aguirre said. …
Aguirre said the settlement is the strongest possible validation for the effort that began as a grassroots movement in California, based on a lawsuit settlement in Massachusetts that focused on reworking predatory loans into more conventional loans that homeowners can afford.
“There is this growing consensus this is the best way to help everybody concerned,” Aguirre said. “The moratorium has taken on the idea of pausing foreclosures to focus on the workouts.”
The settlement focuses on risky loans, including those adjustable-rate mortgages with interest rates that reset dramatically after a several-year intro period with a teaser low rate. Countrywide will lower principal balances for some homeowners under the plan, and lower interest rates for others to as low as 2.5 percent, depending on what the borrower can afford. The loan must be for at least 75 percent of the home’s value, and the first payment must have been due between Jan. 1, 2004 and Dec. 31, 2007.
More context on the settlement, from The New York Times:
Countrywide has made pledges before to modify large swaths of loans. Late last year, it vowed to help about 82,000 borrowers who were facing higher payments through 2008. But the new program will be mandatory and will be monitored by state officials.
Check back for more on this later today.