It appears as if a good part of the old Countrywide Home Loans mess, acquired by the venerable Bank of America when they purchased the sub-prime loan giant earlier this year, may be headed to a somewhat happy ending.
During the "Old Days" for Countrywide, here in Chicago and across Illinois, the popular lender was one of the most active companies offering low-down payment, low-initial-interest-rate home loans to thousands of home borrowers. Many have since gone into default, paying very few, or, in some cases, no payments on their new mortgage loan.
Under a court settlement announced today, affected borrowers in Illinois, as well as in the states of California, Iowa, Ohio, Texas, Arizona, Washington, and Connecticut, will receive modifications of their original home loans to make payments more affordable. These first-ever mandatory modifications, it is hoped, will stop the foreclosures against thousands of distressed borrowers.
Illinois and the other states contended that Countrywide deliberately steered unqualified clients into confusing and risky loan programs without proof they could actually keep up with the payments. Many considered the lender one of the most aggressive, offering thousands of home borrowers loans without proper financial documentation.
Some loans had interest-only repayment schedules initially. Others offered an initial "teaser rate". When payments against principal soon became due, borrowers were overwhelmed by the far-higher monthly payments, and many defaulted.
Bank of America, in settling the lawsuit by Illinois Attorney General Lisa Madigan, as well as the Attorneys General of the other states involved in the litigation, has promised mortgage workouts at rates as low as 2.5% for those holding risky loans, and cash compensation to hundreds of others who have already lost their homes to foreclosure.
An additional six states may be party to a settlement with Bank of America, including Indiana, Michigan, North Carolina, and West Virginia, who are still negotiating with the bank. Both the states affected and the lender hoped the agreed settlement would serve as a model for other lenders being pressured to reset payment schedules for homeowners with foreclosure risk.
The court settlement is the most aggressive worked out since trouble in the mortgage markets across the U.S. began last year - starting with risky sub-prime mortgages, but since spreading to the general mortgage market as well. The risky Countrywide Mortgages will be re-worked so the borrower's monthly payment will not exceed 32% of the borrowing family's monthly household income.
As we all know, many of the mortgaged homes have decreased in value since the homeowner's loan was closed, due to the weakened housing market here in Chicago and in other parts of the country. Some of the Countrywide loans will be adjusted to reflect these new, reduced market values. The main focus of the settlement program, however, would be to reduce required monthly house payments, rather than adjusting the amount of the loan.
The settlement would apply to borrowers who took out Countrywide loans on or before December 31, 2007. Bank of America has also agreed to halt foreclosure sales and not begin new foreclosure proceedings against its customers likely to qualify for loan modification.
Borrowers seeking relief under the settlement should contact Bank of America at 1-800-669-6607. Alternatively, call Attorney General Madigan's Homeowners Referral Hotline - 1-866-544-7151.
For more information, as well as a link to David Greising's story in Monday's Chicago Tribune, view our post today via BlogChicagoHomes.com.
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