State attorneys around the nation this week announced a landmark settlement brokered by Washington and other states requiring sub-prime lender Countrywide Financial Corp. to provide loan modifications for up to 395,000 borrowers nationwide.
Oregon Attorney General Hardy Myers' office is still in talks to win a similar settlement.
"We are in the middle of negotiations with Countrywide concerning this settlement, and we'll be announcing something more down the road," said Jan Margosian of the attorney general's office. "But bottom line is that Oregonians will be covered."
Nearly 10,000 Washington homeowners will receive about $200 million in payment relief.
The settlement resolves allegations that Countrywide had used unfair and deceptive tactics in its loan-origination and servicing activities – and that borrowers often were put in structurally unfair and unaffordable loans. Countrywide is the largest provider of sub-prime mortgages in the U.S., and was bought out by Bank of America on July 1.
Under the settlement, which does not constitute an admission of wrongdoing, Bank of America / Countrywide also agreed to: stop offering pay option ARMs and significantly curtail offering "low-documentation" and "no-documentation" loans; initiate an early identification and contact program for people who have trouble making their payments; and continue working with non-profits, federal agencies, and state Attorneys General on ways to use real estate owned and other properties for community development.
After months of negotiation, requiring several trips to Chicago, Washington State Attorney General Rob McKenna and attorneys general representing several states reached agreement with Bank of America late Friday. Margosian said she could not disclose any details of Oregon's settlement discussions until they're completed.
McKenna reports that in the state of Washington, 42 percent of Countrywide's subprime hybrid arms, 11 percent of pay option arms, and 24 percent of largely fixed-rate subprime loans are delinquent.
Under Washington's agreement, eligible borrowers will be able to modify the terms of their loans to make monthly payments more affordable. Modified loan terms will vary according to the circumstances of the borrower, but they may include an automatic freeze or reduction in interest rates, conversion to fixed-term loans, and refinancing or reduction of principal owed.
First-year payments of principal, interest, taxes and insurance will be targeted under the modifications to equate to 34 percent of the borrower's income, or 25 percent of income for borrowers for whom taxes and insurance are not escrowed.
Countrywide customers who want more information should call toll-free: 1-800-669-6607. Soon there also will be information at www.countrywide.com.
Bank of America / Countrywide also will pay $150 million to states nationwide in a Foreclosure Relief Program for eligible Countrywide customers who suffered foreclosure or who have made only minimal payments since their mortgages were originated. The states may use up to half of those funds for programs aimed at preventing foreclosures. Bank of America / Countrywide also will pay up to $70 million nationwide in payments for relocation assistance to borrowers unable to retain their homes, and will waive up to $60-$80 million in prepayment penalties and default fees.
Countrywide said the loan modification program will be ready for implementation by Dec. 1, and that the company would engage in proactive outreach to eligible customers by then.
Countrywide officials also say that foreclosure sales will not be initiated or advanced for borrowers likely to qualify until Countrywide has made an affirmative decision on a borrower's eligibility.
Countrywide said the loan modification program was designed to achieve affordable and sustainable mortgage payments for borrowers who financed their homes with subprime loans or pay option adjustable rate mortgages serviced by Countrywide and originated prior to Dec. 31, 2007, and who are seriously delinquent or are likely to become seriously delinquent as a result of loan features, such as interest rate re-sets or payment recasts.
The Bank of America / Countrywide settlement resolved investigations into Countrywide's lending practices by Washington, Arizona, Iowa, Ohio, and Texas. It also resolved lawsuits against Countrywide initiated by Illinois, California and Florida.
McKenna noted that a report issued last week by the "State Foreclosure Prevention Working Group" concluded that industry measures to keep homeowners out of foreclosure had slipped since the Group's previous report in April, and that nearly eight out of 10 seriously delinquent homeowners are not on track for any loss mitigation outcome.