At-risk Washington homeowners to get help in Countrywide settlement

Attorney General McKenna says today’s settlement will offer mortgage relief to nearly 10,000 Washingtonians, helping themavoid foreclosure

SEATTLE--Attorney General Rob McKenna Monday announced a landmark settlement brokered by  Washington  and other states requiring sub-prime lender Countrywide Financial Corp. to provide loan modifications for as many as 395,000 borrowers nationwide. As a result, nearly 10,000 Washington homeowners will receive about $200 million in payment relief.

After months of negotiation, requiring several trips to Chicago, McKenna and attorneys general representing several states reached agreement with Bank of America late Friday. Bank of America acquired Countrywide Financial on July 1, 2008.

“Yesterday at Mt. Zion Baptist church, I heard Rev. Dr. Sam McKinney say that congress had recently bailed out Wall Street, with pennies for Main Street and nothing for your street” McKenna said. “That’s why I’m happy to announce real relief for thousands of local homeowners on the brink of foreclosure—and for some who have already lost their homes.”

In the state of Washington, 42 percent of Countrywide’s subprime hybrid adjustable rate mortgages (ARMS), 11 percent of pay-option ARMs, and 24 percent of largely fixed-rate subprime loans are delinquent.

Under the 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 (PITI) will be targeted under the modifications to equate to 34 to 42 percent of the borrower’s income.

The settlement resolves allegations that Countrywide employed 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.
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.

“Today’s agreement will help eligible Washingtonians keep their homes,” McKenna said.  “As we’ve seen in the recent financial downturn, home foreclosures have a big impact on the economic health of our country and our state.  Helping Washingtonians pay their mortgages and stay in their homes is the right thing to do for our citizens and for our economy.”

More details and background:
Countrywide said the loan modification program will be ready for implementation by December 1, 2008, and that the company would engage in proactive outreach to eligible customers at that point. Countrywide also noted 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.

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 REO (real estate owned) and other properties for community development.

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 said he and his colleagues from Arizona, Ohio, Texas and Iowa were especially insistent about the loan modification program in extensive negotiations with Bank of America / Countrywide, and making the modification programs available quickly nationwide.

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 ten seriously delinquent homeowners are not on track for any loss mitigation outcome.

The group of state attorneys general and banking departments concluded:  “The mortgage industry’s failure to develop systematic approaches to prevent foreclosures has only spurred declines in property values and further increased expected losses on mortgage loan portfolios.”

McKenna said of the Countrywide / Bank of America agreement Monday: “This agreement provides for the kind of loan modification program that homeowners need to hold on to their most important investments. Avoiding foreclosures also keeps our financial institutions solvent, provides a lifeline to our communities and neighborhoods, and breathes life into our overall economy by stabilizing the housing market."

{Update}: The final complaint and settlement documents filed in Thurston County Superior Court are available below:

COMPLAINT

CONSENT JUDGMENT

Media Contacts:
Kristin Alexander, AGO Media Relations Manager, (206) 464-6432
Janelle Guthrie, Director of Communications, (360) 586-0725