NEW YORK—Bank of America on Monday reached an agreement with homeowners and several state attorneys general to reduce up to $8.4 billion in interest and principal payments on certain subprime mortgages originated by Countrywide Financial.
The plan will affect nearly 400,000 Countrywide customers nationwide. Once the largest mortgage lender in the United States, Countrywide was hurt by subprime defaults and eventually sold itself to Bank of America for $4 billion in July.
The move will help make mortgage payments more affordable for many subprime and adjustable-rate mortgage borrowers, in an effort to reduce foreclosures and allow homeowners to keep their existing homes.
In addition to interest and principal reductions, Bank of America said that it would not initiate foreclosure proceeding against eligible borrowers under the settlement.
“Our program represents principal and interest reductions over time to borrowers on loans Countrywide owns and on loans Countrywide services on behalf of investors,” said Joe Price, Bank of America Chief Financial Officer. “The cost of restructuring these loans is within the range of losses we estimated when we acquired Countrywide.”
Of the $8.4 billion, up to $3.5 billion will be used to help subprime borrowers in California, where Countrywide maintained a leading market share.
“With this settlement, homeowners will receive direct relief from the catastrophic damage caused by Countrywide,” said California Attorney General Brown in a statement.
“Countrywide’s lending practices turned the American dream into a nightmare for tens of thousands of families by putting them into loans they couldn’t understand and ultimately couldn’t afford.”
Mr. Brown, along with the attorneys general of 11 other states, charged that Countrywide deceived potential borrowers by misrepresenting loan terms, interest hikes, and affordability of the loans.{etRelated: 5180, 5142, 5126}
“This settlement will enable eligible subprime and pay-option mortgage borrowers to avoid foreclosure by obtaining a modified and affordable loan,” said a press release by the California Department of Justice.
The settlement affects around 400,000 borrowers holding mortgages originated prior to Dec. 31, 2007, and serviced by Countrywide.
