Struggling homeowners who got a mortgage from Countrywide may get some relief. Bank of America, which now owns the failed lending giant, settled a lawsuit Monday with California and 10 other states by agreeing to modify some loans and mortgages. KPCC's Julie Small reports that could help tens of thousand of Californians fighting foreclosure.
Julie Small: Bank of America agreed to provide 8-and-a-half- billion dollars in home loan and foreclosure relief to customers who took out home loans from Countrywide. Attorney General Jerry Brown said the settlement won't help every homeowner facing foreclosure. But it's a start.
Jerry Brown: Over the next several months, we think tens of thousands in California, and hundreds of thousands of borrowers throughout the country, will be enabled to stay in their homes.
Small: Bank of America will do that by modifying some subprime loans and what are called "pay option mortgages." That's where borrowers can choose what to pay each month. Depending on the borrower's ability to pay, the bank might reduce interest payments, and even shave off some of the loan principal.
With some loans, B of A will waive late fees, and it'll waive pre-payment penalties, too. They're the fees lenders charge borrowers who pay off subprime loans with lower interest loans. California Attorney General Jerry Brown had sued Countrywide in June. He accused it of predatory lending practices. Brown said B of America recognized a risk when it bought Countrywide.
Brown: Putting people in mortgages that were so complex that people couldn't understand them. In some cases, people were outright lied to. So the liability was clear. And therefore, the only question is, "What's the remedy?"
Small: B of A spokesman Rick Simon says the bank had to do what it could to fix the Countrywide mess. He says foreclosures are expensive for the bank, too.
Rick Simon: It can cost tens of thousands of dollars to foreclose on a single property. And it made sense both to the bank and to the attorneys general, and for the community, and for the borrowers, to take what we would see as potential losses from all of these foreclosures, take that money and put it toward a proactive program to keep those people in the homes instead.
Small: That program starts in December. Before then, the company will identify eligible Countrywide borrowers, and halt the foreclosure process on them. After that, it'll work with borrowers to repair their loans. With the settlement, Bank of America has staked a claim as the mortgage market leader for responsible lending practices. Will other lenders follow? B of A spokesman Rick Simon didn't want to speak for them, but...
Simon: It is a program that we believe provides more solutions than anything that's been provided up until now. If that becomes a template for others, that would be fine. I think that the attorneys general probably would like to see that.
Small: And so would Norma Garcia. She's an attorney with "Consumers Union," the group that publishes "Consumer Reports" magazine. Garcia says all lenders should modify loans for homeowners on the brink of foreclosure.
Norma Garcia: Really, it is one of the most important things that a lender can do, is to work on keeping people in their homes.
Small: Do that, says Garcia, and you'll change a lot.
Garcia: The foreclosure crisis affects everyone. It affects certainly the homeowner, but it affects the next door neighbor, and it affects the city in which the home is located. And it affects the investors, because the borrowers aren't paying on the loans, and the investors aren't, you know, getting, reaping the benefit of the investment that they thought they had made.
Small: Consumers Union attorney Norma Garcia says it's sad that it takes a lawsuit to bring about a solution that makes economic and moral sense. She says she hopes the B of A settlement will push state and federal governments to pass laws that would order lenders to fix bad loans.