Homeowners get some relief

TALLAHASSEE, Fla. – Oct. 7, 2008 – Countrywide Financial will provide Florida homeowners up to $1 billion in mortgage relief under a settlement reached with the state’s attorney general over alleged abusive lending practices.

The relief will include loan changes for an estimated 52,000 Floridians who could see their principal and interest rates reduced to more affordable terms, and cash payments to some borrowers who lost their homes through questionable lending practices by the company.

Countrywide, once the largest home loan company in the country, was acquired in July by Bank of America, which agreed to the accord.

The settlement stems from a lawsuit by Attorney General Bill McCollum alleging that the mortgage giant used deceptive marketing tactics to sell risky, high-cost loans to Florida borrowers during boom years.

Attorneys general of 11 other states filed similar complaints against the lender.

About 400,000 homeowners nationwide will get $8.4 billion in one of the largest settlements so far in which abusive lending was alleged. McCollum has said his office in recent years received more than 2,000 complaints from Countrywide customers.

The lawsuits claimed that the company stuck homeowners with loans they could not afford and misrepresented or concealed loan features and penalty fees that accompanied them.

Among the loans were pay-option adjustable-rate mortgages, which offered initial teaser rates and low monthly payments that later ballooned. When minimum payments are made, the balance actually grows.

As part of the agreement, Countrywide will launch a program to refinance subprime borrowers and consumers with pay-option ARMs into fixed-rate loans they are capable of repaying. Borrowers must have made their first loan payment before Dec. 31, 2007, and must meet other eligibility requirements.

April Charney, an attorney with Jacksonville Area Legal Aid who specializes in predatory lending cases and foreclosure defense, said too few details were available to determine whether the program would bring significant relief to Countrywide borrowers.

But millions of other homeowners were still struggling under the mortgages they could never afford, she said.

“The techniques that were used to sell these toxic consumer products were industry-wide,” Charney said.

There are about 572,000 active Countrywide loans in Florida, according to the attorney general’s office.

In the settlement, Countrywide also agreed to suspend foreclosures on all subprime and pay-option ARMS until it determines whether borrowers meet the refinancing guidelines.

Countrywide also must waive any fees associated with the refinance, as well as prepayment penalties and late fees.

The attorney general’s office estimates that 52,000 Florida borrowers will be eligible for the refinance program. The total value of fees that will be waived is $17.7 million.

Additionally, the company will make cash payments to certain borrowers who have lost their homes to foreclosure if it is determined they had no chance of making the payments in the first place. These borrowers will have defaulted within the first six months of getting loans. Early defaults are often the telltale sign of bad underwriting or fraud. Underwriting is the scrutiny of loan applications meant to make sure a borrower is able to make payments.

About $20 million of some $150 million for borrowers nationally has been set aside for Florida consumers.

Under a new relocation assistance program, borrowers who are headed to foreclosure also will get cash payments for agreeing to leave their home voluntarily at the time of the public auction.

Arden Shank, executive director of Neighborhood Housing Services of South Florida, said the deal will prevent thousands of people from entering foreclosure.

“We’re working on these kind of mitigation plans for dozens and hundreds of families and this opens another possibility for helping another group of homeowners stay in their homes,” Shank said.

Bank of America bought Countrywide the day after the lawsuit was filed.

The attorney general’s office said the company worked closely with the state to address the lawsuit’s allegations.