LOS ANGELES (CN) – Bank of America agreed to pay$8.7 billion to help homeowners facing foreclosure because of the predatory lending practices of Countrywide Home Loans. Bank of America bought Countrywide in July for $4 billion. The multistate settlement will allow as many as 400,000 borrowers to adjust their mortgages and stay in their homes, suspending foreclosures for borrowers with subprime and adjustable-rate loans.
The deal will also offer reduced interest payments, forgive late fees and prepayment penalties, and grant payments to borrowers who are in danger of foreclosure. And it is intended to help relocate borrowers who have already lost their homes.
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.
The loans must apply to owner-occupied properties whose loan balance is 75 percent or more of the home’s value. The owner must be able to afford the loan after getting help from the settlement.
One goal of the settlement will be to bring mortgage payments down to 34 percent of a borrower’s gross income.
Attorney General Jerry Brown said some borrowers are struggling with payments that represent 50 to 60 percent of their income.
The settlement is the result of an 11-state lawsuit against Countrywide. 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 Attorneys General 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, “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 said he would continue prosecuting his case against former Countrywide CEO Angelo Mozilo and president and COO David Sambol.