Jerry Brown (D)
SACRAMENTO, Calif. (Legal Newsline)-With news of a billion-dollar settlement between financial giant Bank of America and attorneys general from 11 states, thousands of homeowners facing foreclosures could soon have a rebirth of opportunity to save their homes.
News of the settlement leaked out of several state attorneys general offices Sunday night. Those close to the negotiations hailed the progress as a significant step toward stemming the tide of the foreclosure crisis that has caused an earthquake in the county's economic foundations.
"This is definitely a home run," said San Diego City Attorney Mike Aguirre, one of the many city officials suing Countywide Financial Corp. over its alleged predatory lending practices.
California Attorney General Jerry Brown, who led much of the negotiations with Bank of America, parent company of Countrywide, too hailed the victory of homeowners.
"Unlike last week's congressional bailout," Brown said, "This loan-modification program provides real relief for borrowers at risk of losing their homes."
Brown said the $8.68 billion settlement, with $3.5 billion going to his state, is the largest of its kind, far surpassing the $484 million settlement with Household Financial Corp. in 2002.
But Aguirre said the biggest victory of this weekend's settlement is not the financial award, but the agreement to forestall foreclosures to allow homeowners time to rework predatory loans and thereby save their homes.
"The focal point of the settlement gives people the opportunity to stay in their homes and rework their loans," Aguirre told Legal Newsline on Sunday. "The big picture will mean there will be less autopilot types of foreclosures on our neighborhoods, so that's why from the start we've been focused on our foreclosure protection."
Aguirre's lawsuit, filed on behalf of San Diego, a California city beset by foreclosures, has not yet directly settled with Bank of America.
"We will be," Aguirre said.
The California Attorney General's office summarized the settlement by also focusing on the ability for homeowners to now rework their loans.
"In a nutshell," the statement stated, "this settlement will enable eligible subprime and pay-option mortgage borrowers to avoid foreclosure by obtaining a modified and affordable loan."
Terms of the settlement include waiver of late fees and early prepayment fees, which in California, Brown estimates to be a value of more than $60 million.
"The loans covered by the settlement are among the riskiest and highest defaulting loans at the center of America's foreclosure crisis," the California attorney general's office said.
The modification program covers subprime and pay-option adjustable-rate mortgage loans in which the borrower's first payment was due between Jan. 1, 2004 and Dec. 31, 2007.
The program will be available for loans in default that are secured by owner-occupied property and serviced by Countrywide Financial or one of its affiliates, according the attorney general's office.
Borrowers' loan balance must be 75 percent or more of the current value of the home, and the borrower must be able to afford the adjusted monthly payments under the terms of the modification.
Several different types of programs will be available, depending on the circumstances of each individual Countrywide client.
Aguirre said the settlement is the strongest possible validation for the effort that began as a grassroots movement in California, based on a lawsuit settlement in Massachusetts that focused on reworking predatory loans into more conventional loans that homeowners can afford.
"There is this growing consensus this is the best way to help everybody concerned," Aguirre said. "The moratorium has taken on the idea of pausing foreclosures to focus on the workouts. It is the model that the FDIC pushed."
In recent weeks, the Federal Deposit Insurance Corp. has adopted similar policies after seizing control of IndyMac. In September, four members of the U.S. Senate wrote a letter to the chairman of Freddie Mac and Fannie Mae encouraging the FDIC's model be used for their clients as well.
With this Countrywide settlement, Aguirre said, the emphasis on foreclosure relief is taking hold throughout the country.
The California Attorney General's office said the settlement does not apply to Angelo Mozilo, the former Chairman and Chief Executive of Countrywide Financial Corporation or David Sambol, formerly the President of Countrywide Home Loans and the President and Chief Operating Officer of Countrywide Financial Corporation.
Brown will continue to prosecute his case against Mozilo and Sambol, he said.