Countrywide Financial Corp. has agreed to make loan modifications for about 395,000 U.S. mortgage holders and pay $150 million into a foreclosure relief fund to settle predatory lending complaints filed by various states, including Kentucky.
About 2,500 Kentucky borrowers will be offered loan restructuring under the settlement, Kentucky Attorney General Jack Conway’s office said in a news release.
The subprime lender, which was bought last year by Bank of America, has agreed to restructure more than $252 million of outstanding debt owed by Kentuckians, Conway’s office said in the release.
“This mandatory loan modification program will provide immediate relief to Kentucky borrowers who are facing foreclosure,” Conway said in the release. “The goal is to help these borrowers remain in their homes into the future with an affordable mortgage loan.”
Kentucky will receive about $1.6 million of the $150 million of the foreclosure relief funding, Conway’s office said in the release.
The settlement resolves allegations that Countrywide used “unfair and deceptive practices” in its loan origination and servicing business, Conway’s office said in the release. It added that many Kentucky borrowers were sold mortgage loans that were unaffordable, leading to increased defaults and foreclosures.
Countrywide settled the case without admitting any wrongdoing. It denied all allegations.
The restructuring program will cover borrowers with subprime loans, including adjustable rate loans with initial “fixed” rates and pay-option adjustable rate mortgages.
Eligible mortgage holders will receive a letter from Conway’s office and Bank of America.
To be eligible, a customer must:
• Hold a Countrywide-originated mortgage, secured by owner-occupied property;
• The first payment must have been due between Dec. 21, 2004, and Dec. 31, 2007;
• The loan has to have been foreclosed or more than 120 days delinquent on Oct. 8, 2008; and
• Six or fewer payments must have been made during the life of the loan.
As a part of the settlement, Countrywide and Bank of America Monday filed an Assurance of Voluntary Compliance with Franklin Circuit Court in Frankfort, Ky.
Under the voluntary “best practices” agreement, Countrywide agreed to suspend foreclosure sales on loans likely to qualify for the program. It also agreed to establish an early identification and contact program for borrowers who have trouble making monthly payments and discontinue offering pay option adjustable rate mortgages.
In addition to those practices, Countrywide will waive loan modification fees and drop prepayment penalties on subprime and pay option ARM loans. It also will set up a fund to assist borrowers who do not qualify for loan modification.
Countrywide agreed to set aside $8.5 million to establish a separate fund to help borrowers who lost their homes through foreclosure in which the borrower was sold a subprime or pay option ARM loan and the borrower defaulted within six months after closing or at the time the interest rate reset.
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