Settlement will modify almost 400,000 Countrywide mortgages

ByABC News
October 6, 2008, 2:46 PM

— -- Nearly 400,000 homeowners will be able to have their mortgages made more affordable under an agreement Monday by Bank of America to modify mortgages originated by Countrywide Financial in the largest predatory lending settlement in history.

Bank of America took over Countrywide in July, and Monday's announcement will settle claims by attorneys general in 11 states. Bank of America has agreed to modify loans for homeowners holding sub-prime loans and option adjustable-rate mortgages with Countrywide.

The bank says the settlement could result in up to $8.4 billion in interest-rate and principal reductions for those homeowners.

The loans must have been serviced by Countrywide and originated before Dec. 31, 2007.

The Countrywide settlement will dwarf the $484 million settlement with Household Finance Corporation in 2002, according to the California attorney general's office. Attorneys general in states including West Virginia, California, Connecticut and Illinois had argued that Countrywide deceived borrowers by misrepresenting loan terms, loan payment increases, and the borrowers' ability to afford loans.

"Countrywide's lending practices turned the American dream into a nightmare for tens of thousands of families by putting them into loans they couldn't understand and ultimately couldn't afford," California Attorney General Edmund Brown said Monday.

Details of the agreement:

Loan modifications will be made for eligible borrowers who are seriously delinquent due to loan features such as resets in adjustable rates. Modifications will also be made for those likely to become delinquent.

Foreclosure sales will not be initiated or move ahead for borrowers who are likely to qualify until a final decision has been made on whether a homeowner is eligible for a modification.

Homeowners must occupy the home at issue as their primary residence.

Eligible homeowners will not be charged loan modification fees, and prepayment penalties will be waived for those with sub prime and pay-option loans that Countrywide or its affiliates own.