BofA to slash mortgage payments for troubled loans

Bank of America has announced a drastic plan to address the toxic loans it inherited from Countrywide Financial, which is to slash mortgage payments or even reduce the principal balance owed so mortgage holders can stay in their homes and avoid foreclosure. CNNMoney.com explains:

A plan announced today by Bank of America will be the most aggressive foreclosure prevention effort ever undertaken by a U.S. bank.

The program, scheduled to start in December, will be open to distressed borrowers who signed up with Countrywide Financial between January 1, 2004 and December 31, 2007. Countrywide was acquired by Bank of America (BAC, Fortune 500) in July.

It came in a legal settlement that the company entered into with the attorney general offices of 11 states, who had sued Countrywide over predatory lending practices, but the company stated that borrowers in all 50 states will be eligible to participate in the program...

As part of the initiative, Bank of America will cut monthly housing payments, including mortgage, property taxes and insurance, to no more than 34% of gross income. The move is expected to help keep as many as 400,000 troubled borrowers in their homes.

The program targets holders of subprime adjustable rate mortgage (ARMs), subprime fixed rate loans and option ARMs, but prime and Alt-A borrowers, who did not document their income, will be eligible as well.

No other foreclosure prevention effort has aimed to keep borrowers' house payments so low...

By contrast, the much heralded foreclosure-prevention initiative announced in August by the FDIC for customers of IndyMac Bank, the subprime lender that the agency took over in July, said it will keep borrower payments to no more than 38% of gross income.

"This is the biggest mandatory modification of loans in U.S. history," said Jerry Brown, attorney general of California, the state with the largest number of borrowers who may benefit from the settlement. "Of course, we never saw such a big rip-off by any other company either."

According to Simon, the Countrywide program will proactively screen all of its borrowers for eligibility, and then contact them directly to offer loan workouts. No prepayment penalties or modification fees will apply. But the program can't help every Countrywide borrower. Some, because of illness, divorce, job loss and the like, simply won't be able to afford any reasonable mortgage payment...

As the credit crisis continues, more and more lenders and mortgage servicers are coming to grips with the fact that preventing a foreclosure is usually cheaper than going through the repossession process and then reselling the property in a declining market.

(DUH!)

Depending on each borrower's circumstances, Bank of America might freeze or lower a loan's interest rate or even cut the principal loan balance. The bank said it will also participate in the government's Hope for Homeowners program, a provision of the housing rescue bill which went into effect Oct. 1 and makes FHA-insured loans available for delinquent borrowers.

The Countrywide VIP List: Senators, Regulators, Celebrities & CEOs

It seems Angelo Mozilo never met a person of influence he didn't want to make into a "Friend of Angelo's," who would qualify for rate reductions and elimination self-admitted 'garbage fees' in exchange for real and perceived favors in the past and in the future. So how can I get a refund for the fees I paid when I got a loan through Countrywide?? According to a cover story in Portfolio magazine (sort of a competitor to Fortune), perhaps running for the Senate would be a good start, and if this story doesn't get you angry, then apparently nothing will:

Through a program that provided loans on favorable terms to V.I.P. borrowers, the nation’s largest mortgage lender curried favor with politicians, government officials, and business partners who were in a position to influence policy, profits, or public opinion. While some may not have been fully aware of the special terms, many took the bait...

The vigor with which Countrywide chased V.I.P.’s was matched only by the aggressiveness with which it marketed loans to risky borrowers. In the past year, Countrywide morphed into the Chernobyl of the mortgage meltdown, with the F.B.I. investigating its lending practices, its stock plummeting, and Bank of America buying the company at a fire-sale price. Much as the high­fliers of the internet bubble crashed overnight, the company that symbolized the housing market’s boom has quickly come to define its collapse. In June, Condé Nast Portfolio disclosed the names of five V.I.P.-loan recipients: Senators Christopher Dodd and Kent Conrad, former cabinet members Alphonso Jackson and Donna Shalala, and former United Nations Ambassador Richard Holbrooke. The Wall Street Journal reported that James Johnson and Franklin Raines, both former C.E.O.’s of government-sponsored mortgage buyer Fannie Mae, received favorable rates.

But many other V.I.P. borrowers haven’t been named until now, including former Countrywide director Henry Cisneros, who served as secretary of Housing and Urban Development in the Clinton administration; former White House staffer Paul Begala, now a commentator on CNN; and Postmaster General John Potter.

Countrywide also offered special discounts to Congressional staffers involved in housing issues. Current or prospective business partners who received special treatment include former C.E.O.’s William Esrey of Sprint, which teamed up with Countrywide to provide property information to homebuyers on their cell phones, and Bruce Karatz of KB Home, a leading homebuilder that refers customers to Countrywide for mortgages.

The biggest subset of V.I.P.’s included Mozilo’s network of friends, business associates, and people he wanted to ingratiate himself and his company with; they were known in company emails and memos by the initials F.O.A.—Friends of Angelo...

Read the full story in its entirety -- it's quite illuminating.

California sues Countrywide

In a clear sign that government is taking the residential lending bust to a new level, California Attorney General (and former Governor) Jerry Brown has sued Countrywide Financial, arguing that the company set out to deliberately relax underwriting guidelines and deceive borrowers with Option ARM and other adjustable rate loans that were in fact financial ticking time bombs. From an L.A. Times story:

Countrywide Financial Corp. and its chief executive, Angelo Mozilo, were sued today by California Atty. Gen. Jerry Brown, who accused them of forcing thousands of Californians into foreclosure by deceptively marketing risky adjustable-rate mortgages to borrowers who didn't understand that their monthly payments would one day "explode."

In a complaint filed in Los Angeles County Superior Court, Brown alleges that Countrywide and its top executives, beginning in 2004, plotted to loosen or ignore lending standards so they could make more sub-prime mortgages and other adjustable-rate loans that were promoted by emphasizing low initial rates.

By deceiving borrowers about the risks of these loans, Countrywide's top executives sought to double the lender's share of the national mortgage market to 30%, mass-producing loans that could be sold off and transformed into complex bonds, the suit said...

The California suit, which also names Countrywide President David Sambol as a defendant, asks the court to order an end to what it calls the misleading and unfair practices, and demands that homeowners victimized by the alleged scheme have their money and property returned. The complaint doesn't specify what procedures might be used to accomplish this restitution.