California’s attorney general today announced a multibillion-dollar settlement over alleged unfair and deceptive lending practices by Countrywide Financial Corp. — the company was acquired by Bank of America earlier this year.

The settlement is expected to allow hundreds of thousands of eligible borrowers to obtain more affordable loans and avoid foreclosure.

"The Countrywide settlement will likely become the largest predatory lending settlement in history, dwarfing the nationwide $484 million settlement with Household Finance Corp. in 2002, under which California received approximately $91 million," according to a statement today by the office of California Attorney General Jerry Brown .

The settlement, with Countrywide Home Loans, Countrywide Financial Corp. and Full Spectrum Lending, is expected to provide up to $8.68 billion worth of relief, including $3.5 billion to California borrowers.

California was among a group of several states that had filed lawsuits against Countrywide. Attorneys general in Arizona, Connecticut, Florida, Illinois, Iowa, Michigan, North Carolina, Ohio, Texas and Washington are also participating in the settlement. Attorneys general in California and Illinois reportedly led the negotiations for the group of states.

Bank of America referred to the settlement agreement in a statement as a "proactive home retention program that will systematically modify troubled mortgages with up to $8.4 billion in interest rate and principal reductions for nearly 400,000 Countrywide Financial Corp. customers nationwide."

The program is intended to benefit those borrowers who "financed their homes with subprime loans or pay-option adjustable-rate mortgages serviced by Countrywide and originated prior to Dec. 31, 2007," the company announced. Bank of America acquired Countrywide on July 1, 2008.

"We are confident that together with the attorneys general we have developed a comprehensive program that provides more solutions than ever before to assist troubled borrowers and put them back on the path to sustained home ownership," said Barbara Desoer, president of Bank of America Mortgage, Home Equity and Insurance Services, in a statement today.

The new program will be in place by Dec. 1, and foreclosure sales will be temporarily frozen for those borrowers who are likely to qualify for the program, Bank of America announced.

"Unlike last week’s congressional bailout (see Inman News), this loan modification program provides real relief for borrowers at risk of losing their homes," Brown said in a statement, adding that the move by the states was a result of a breakdown in federal regulation of mortgage lending.

Angelo Mozilo, the former chairman and CEO of Countrywide Financial Corp., and David Sambol, former president of Countrywide Home Loans and the president and chief operating officer of Countrywide Financial Corp., are not included in the settlement agreement. "Brown will continue to prosecute his case against Mozilo and Sambol," the California Attorney General’s Office announced.

Refinancing into FHA-insured loans under the federal Hope for Homeowners program, and reductions in interest rates and principal are among the options that will be available to eligible borrowers.

The California Attorney General’s Office reported that loan modifications in that state would be valued at up to $3.4 billion, and there would also be a waiver of late fees up to $33.6 million; waiver of prepayment penalties up to $25.6 million; $27.9 million in payments to some borrowers who are 120 or more days delinquent or whose homes have already been foreclosed; and about $25.2 million in additional payments to borrowers who cannot afford monthly payments under the loan modification program and ultimately lose their homes to foreclosure.

The settlement specifically covers subprime and pay-option adjustable-rate mortgage loans for which the borrower’s initial payment was due between Jan. 1, 2004, and Dec. 31, 2007, according to the California announcement, and the program is available for loans in default that are secured by owner-occupied property and serviced by Countrywide Financial or an affiliate. The loan balance must be 75 percent or more of the current value of the home, and the borrower must be able to afford adjusted monthly payments under the modification terms, the announcement states.


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