Boomer’s Blog

Bank of America scooped up some great bargains when it acquired Countrywide’s assets… or did it?

BofA has agreed with 11 state Attorneys General (AG) to pay $8.5 billion to modify troubled mortgages it acquired as part of its July purchase of Countrywide.

Under the agreement, Countrywide customers may benefit from an automatic freeze or reduction in interest rates, an extension of loan terms, conversion to fixed term loans, or principal reduction. Eligible borrowers who participate will not be charged late fees, loan modification fees, foreclosure fees, or pre-payment penalties.

Terms of the Deal
As a result of today’s settlement, BofA will spend $150 million nationwide to assist homeowners who have already lost their homes. The company also will spend up to $70 million to homeowners who, despite the loan modification program, are ultimately unable to keep their homes. The settlement also requires that eligible Countrywide borrowers who have suffered foreclosure or who are unable to afford their homes even under a modified loan arrangement will be offered soft landing payments to ease re-location to another home.

The deal will enable eligible subprime and pay-option mortgage borrowers to avoid foreclosure by obtaining a modified and affordable loan. The loans covered by the settlement are among the riskiest and most default-prone  loans, which are blamed for triggering the foreclosure epidemic that now imperils Wall Street and international financial markets.

BofA says foreclosure sales will not be initiated or advanced for borrowers likely to qualify for the modifications through the program, which is expected to launch Dec. 1.

Settlement Could Rattle Investors
Analysts are saying that this settlement with state AGs is likely to damper investor enthusiasm for BofA, though the deal could help an estimated 400,000 struggling homeowners to keep their houses.  (Note: The Washington Post reports that BofA only holds only 12 percent of the 400,000 loans under discussion here.)

Attorneys General Wage War on Foreclosure
AGs in California and Illinois led the negotiations for the states that tackled Countrywide Financial Corp., Countrywide Home Loans and Full Spectrum Lending in their efforts.

California Scores the Biggest Piece of Relief
California AG Edmund (Jerry) Brown says $3.5 billion of the settlement will aid California borrowers and that the Countrywide settlement will likely become the largest predatory lending settlement in history, dwarfing the nationwide $484 million settlement with Household Finance Corporation in 2002, under which California received approximately $91 million. (Access Frequently Asked Questions about the Calif. Settlement agreement here:  and the text of the complaint here.)

Calif.  Attorney General Brown’s efforts are ongoing to separately slam former Chairman Angelo Mozilo or former Countrywide Home Loans President and COO David Sambol. (Click here for details.)

Michigan Scores Big One for Countrywide’s Borrowers
According to Michigan AG Mike Cox, Countrywide to pay nearly $10 million, to help more than 10,000 struggling Michigan homeowners. Under the terms of the settlement, Countrywide will:

• Refinance as many as 9,700 mortgages in Michigan, giving families an opportunity to keep their homes, and saving them approximately $129 million as a result of more favorable terms.
• Pay more than $9.8 million to assist Michigan homeowners who lost their homes to foreclosure. These funds will also be used for borrower education programs and neighborhood rehabilitation efforts.
• Pay relocation assistance payments to certain homeowners who go into foreclosure after the date of this settlement, costing Countrywide up to $70,000,000 nationally.
• Stop selling subprime and option ARM loans in Michigan for two years, and impose new limits on the sale of low or no-documentation loans.
• Cap the amount a broker can earn to 4 percent of the amount borrowed.
• Stop an automatic foreclosure process until certain details regarding the mortgage holder’s situation have been verified.
• Report quarterly to the Attorney General on the status of its troubled mortgages and what is doing to keep them from going into foreclosure.
• Maintain a specified number of staff focused on helping troubled homeowners avoid foreclosure proceedings.

More State Settlement Details
Follow links provided below to specific state information regarding the settlement agreement reached today between AGs and BofA as a result of Countrywide’s subprime lending habits.

• Arizona: More than 13,000 Arizonans are expected to qualify for the loan modification program that will provide them up to $245 million in permanent relief, says State AG Terry Goddard.
• Connecticut: About 4,500 people in Connecticut may be affected by the settlement. Here, because Countrywide engaged in criminal behavior rates on mortgage payments to could be dropped as low as 2.6 percent with no program-participating homeowner paying more than 34 percent of income on mortgage payments, State AG Richard Blumenthal says. Also, BofA has agreed to cap mortgage amounts at no more than 95-percent of the actual value of the home.
• Florida: State AG Bill McCollum says the settlement requires BofA to pay $21 and modify home loans with an estimated 52,000 of the 73,000 subprime loans Countrywide issued in the state.
• Illinois: Approximately 10,750 Illinois borrowers are expected to receive loan adjustments, representing nearly $185 million in modifications, according to state AG Lisa Madigan.
• Iowa: Here, the settlement will require mortgage loan modifications for more than 1,100 Iowans, state AG Tom Miller says. Potential economic relief to be paid for Iowa borrowers is estimated at $11 million.
• North Carolina: The agreement by State AG Roy Cooper is expected to provide $71 million in reduced mortgage payments to more than 5,000 North Carolina borrowers
• Ohio: More than 8,000 Ohioans will receive loan modifications, says state AG Nancy Rogers. Relief to borrowers here alone is estimated to be about $97 million. Depending on the type of loan, Rogers says that nearly half of Countrywide’s subprime loans in the state are delinquent.
• Texas: Bank of America estimates that up to 30,000 Texas homeowners will qualify for the loan modification program. State AG Greg Abbott predicts that Texans will get a $350 million slice of the settlement pie.
• Washington: State AG 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 up to 395,000 borrowers nationwide. As a result, nearly 10,000 Washington homeowners will receive about $200 million in payment relief.

In addition to the 11 state AGs making settlement announcements today, about 8,000 borrowers in Virginia, 7,000 in Maryland and 800 in the District of Columbia could benefit, according to a Washington Post report. Those who qualify for participation in the program have subprime mortgages that are either close to or in some stage of default. More states are likely to join the settlement.

Bank of America Corp. expects to re-negotiate at least $40 billion in at-risk mortgages after it completes its long-anticipated acquisition of Countrywide Financial Corp. this quarter.

In March, BofA announced renewed plans to buy the slice of Countrywide it didn’t already have in an all-stock transaction worth about $4 billion. Soon afterwards, Countrywide announced that 34 percent of its subprime mortgages were delinquent by Q4, 2007, representing a steady rise from 21 percent in Q4 2006.

In August, BofA invested $2 billion in Countrywide, and earned a non-voting preferred security which yields 7.25 percent annually. The security can be converted into 16 percent of Countrywide’s common stock. Countrywide is slated to announce its Q1 earnings April 29.

BofA estimates that its efforts to re-work Countrywide’s troubled mortgages likely will enable 265,000 mortgage customers to keep their homes and promises it will let distressed property dwellers inhabit their locations for 60 days after foreclosure completion. After foreclosure, those who vacate within 30 days will get $2,000 for moving expenses.

Of the acquisition, the Motley Fool muses that, since the onset of the mortgage meltdown, Countrywide — the nation’s largest mortgage lender — has become synonymous with the subprime mortgage debacle, irresponsible lending practices and unscrupulous executives who miraculously manage to stay employed, despite their roles in decimating the housing market and the economy. Fool reporter Morgan Housel predicts that dropping Countrywide’s tainted moniker will be BofA’s first course of action when the acquisition deal is complete.

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