LOS ANGELES (CN) – Bank of America agreed to pay up to $8.68 billion to help home owners facing foreclosure because of the predatory lending practices of Countrywide Home Loans, in a settlement announced today by the California Attorney General. The settlement is thought to be the largest amount ever paid for predatory lending.
Bank of America bought the failed mortgage lender Countrywide in July for $4 billion.
The multi-state settlement will allow as many as 400,000 borrowers to adjust their mortgages in order to stay in their homes by suspending foreclosures for borrowers with subprime and adjustable-rate loans, offering reduced interest payments, forgiving late fees and prepayment penalties, and granting payments to borrowers who are in danger of foreclosure.
The settlement plan will also help relocate borrowers who have already lost their homes. One goal of the settlement will be to bring mortgage payments down to 34 percent of a borrower’s gross income. Brown estimated that some borrowers are struggling with payments that represent 50 to 60 percent of their total income.
Borrowers in default, who bought their homes between January 2004 and December 2007 using subprime or adjustable rate mortgages from Countrywide will be eligible to participate in the settlement. The loans must apply to owner-occupied properties where the loan balance is 75 percent or more of the home’s value. Also, the owner must be able to afford the loan after getting help from the settlement.
The settlement is the result of an 11-state lawsuit against Countrywide. Currently, California, Arizona, Connecticut, Florida, Illinois, Iowa, Michigan, North Carolina, Ohio, Texas, and Washington are participating in the settlement. More states are expected to join.
California and Illinois Attorney Generals Ed Brown and Lisa Madigan led the settlement negotiations. California will get $3.5 billion of the settlement, assuming that all eligible borrowers participate.
Brown said in a statement that “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.”
Brown also said he would continue prosecuting his case against former Countrywide bigwigs Angelo Mozilo and David Sambol. Mozilo was Countrywide’s chairman and Chief Executive Officer, while Sambol served as president of Countrywide Home Loans and as president and Chief Operating Officer of Countrywide Financial Corporation.