AGs hail Countrywide settlement as model for future

Legal News Line Oct. 7, 2008, 1:00pm

Jerry Brown (D)

Lisa Madigan (D)

SAN FRANCISCO (Legal Newsline)-An $8.68 billion dollar settlement between 11 states and Bank of America, parent company of Countrywide Financial Corp., was hailed by the attorneys general that negotiated the deal as a model for the rest of the country as it seeks solutions to the housing crisis that has crippled the U.S. economy.

"This program will serve as a model for other lenders and the federal government because of its immediate and far-ranging impact," Illinois Attorney General Lisa Madigan said Monday.

Madigan and California Attorney General Jerry Brown were the first of several attorneys general to sue Countrywide, the nation's largest mortgage lender prior to it being sold to Bank of America in July. Brown said the deal was the largest of its kind.

"This is the biggest mandatory loan modification in American history," Brown said during a press conference in downtown San Francisco on Monday. "Those who were ripped off and put in mortgages so complicated they didn't understand the terms ... will now have substantial relief."

Brown said the deal far exceeds the $484 million settlement with Household Financial Corp. in 2002.

"The liability was clear," Brown said of Countrywide's lending practices, which included paying bonuses to employees who sold more expensive and riskier loans to customers. "Bank of America is stepping up to the plate. Thankfully they are one of the financial institutions that still has some money," he added.

Brown and Madigan expect that more than 400,000 homeowners in the 11 states that agreed to the deal will be helped by the settlement. A fact-sheet released by the Illinois attorney general's office said the deal includes substantial foreclosure relief.

"Countrywide will suspend foreclosures on all loans that meet the eligibility criteria while determining whether the borrowers qualify for loan modifications," the release stated.

In a press release issued on Monday, Bank of America said, "Foreclosure sales will not be initiated or advanced for borrowers likely to qualify until Countrywide has made an affirmative decision on the borrower's eligibility."

According to Bank of America, the deal applies to Countrywide customers in the 11 states that agreed to the settlement with subprime loans or pay-option adjustable rate mortgages that began before Dec. 21, 2007.

Countrywide will provide counselors who will work with borrowers through a variety of options to rework their loans, Bank of America said on Monday. These solutions could include FHA refinancing, interest rate reductions approved through streamlined processing or principal reductions on pay option adjustable rate mortgages that restore lost eligibility. Countrywide counselors will determine eligibility within 60 days of receiving the appropriate financial paperwork from Countrywide customers, the press release stated.

This program applies only to owner-occupied residences and begins on Dec.1, 2008.

"Now more than ever homeowners and home buyers are looking to Bank of America as the lender they trust and as a leader that can renew America's confidence in home ownership," said Barbara Desoer, president, Bank of America Mortgage, Home Equity and Insurance Services. "Combined with our strong track record in responsible lending and previously announced lending practices ... this bold new program makes it clear that Bank of America is committed to be the leader in responsible mortgage lending practices."

In addition to mortgage relief, Countrywide will make an anticipated $150 million in cash payments to borrowers who have lost their homes to foreclosure after experiencing an early payment default or after an interest rate reset, the Illinois attorney general's office said.

Bank of America will spend $60 million for a relocation assistance program for any homeowner who voluntarily leaves their home prior to a foreclosure sale. According to the terms of the settlement, Countrywide will waive several fees that total more than $150 million.

Kate Sears of the California attorney general's office, who worked to hammer out the terms of the deal, said provisions are included to accommodate homeowners who have not yet seen their loans escalate. But she cautioned homeowners from simply defaulting on their loans.

"Clearly borrowers don't want to stop making their payments," Sears said Monday, "but to also understand that there is an arrangement that the bank will look ahead for those who will need help."

Sears said the deal looked ahead to problems on the horizon, as well as helping those in dire need now.

"I think this is a forward-looking settlement," she said.

Bank of America Chief Financial Officer Joe Price said the deal creates "a solution in the best interests of both our customers and the investors who loans and securities we service."

Price said the cost of the settlement "is within the range of losses we estimated when we acquired Countrywide."

The deal is not without its critics, despite wide-spread optimism Monday. Robert Gnaizda, general counsel of the California-based Greenlining Institute said the terms of the deal were highly favorable to Bank of America.

"Bank of America said they anticipated these costs when they acquired Countrywide," Gnaizda told Legal Newsline. "And the vast majority of the benefits have nothing to do with the settlement. I don't want to give the attorney general credit for something that was going to happen anyway."

Gnaizda said Bank of America, by using the $300 million FHA program and with potential benefits from the $700 million bailout approved by Congress on Friday are paying far less than the announced $8.68 billion figure.

"Very little of the dollar amount is in excess of what the Bank of America would have been required to do to be eligible for the various bailout funds made available since the attorney general brought suit in June 2008," Gnaizda said.

The Greenlining Institute, a public policy and advocacy center that has pushed Brown to secure a moratorium that would secure an iron-clad temporary stop to foreclosures, said the current deal does not offer that peace of mind to many of the homeowners facing foreclosure.

The Greenlining Institute also wants Bank of America to commit to an additional $200 million in home counseling and loss-mitigation efforts, which Gnaizda said has proven to be effective in helping people better understand and meet their obligations. The program would also help customer who aren't certain of what they options are available for them to come forward and get the help they need, he said.

The best model for solving the foreclosure crisis has been advocated by the Federal Deposit Insurance Corp. since it took over IndyMac after it failed, Gnaizda said.

"FDIC Chair Sheila Bair, when she acquired IndyMac did more for their borrowers than Jerry Brown has done for Countrywide borrowers," Gnaizda said.

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