If your mortgage is with Countrywide, a window of opportunity to refinance your loan was opened on October 6, when the company agreed to change the terms of loans for homeowners trapped in mortgages they can't afford. As part of an $8.7 billion predatory lending settlement announced by California Attorney General Jerry Brown, up to 400,000 mortgages made before December 31, 2007 could be affected.
Countrywide, once a leader in subprime, adjustable-rate, and other risky loans, was sued by the State of California, Florida, and Texas, for deceptively marketing risky loans with low teaser rates to attract buyers who didn't understand what their payments would be when the starter rate expired. The States of Arizona, Ohio, Iowa, Michigan, Washington, and North Carolina joined the suit. It is expected that borrowers in all states will reap the benefits of the settlement even if their states do no not join.
What borrowers can expect is that Countrywide will change terms of loans in a variety of ways that will decrease the payments for most buyers. Ways this might be done include maintaining teaser rates for five years or dropping the interest rate to as low as 3.5%, converting loans to fixed rate loans with interest as low as 2.5%, or reducing the interest on fixed rate loans to interest as low as 2.5%. If possible, Countrywide will attempt to have the loans backed by FHA through Hope for Homeowners. For loans that now exceed the value of the home, Countrywide is willing to rewrite the loan amounts. In addition, Countrywide will waive late charges and loan modification fees.
The goal is to keep homeowners in their homes and to compensate those whose loan terms cannot be worked out so that the new mortgage is no more than 35% of their income.
Before this settlement, Countrywide had begun to work with homeowners to work out loan refinancing arrangements and even had some loan buy back programs in place before it fell on hard times in 2007. Countrywide was bought out by Bank of America in January, 2008 and assumed its loan portfolio. - and lawsuits. The recent settlement does not contain an admission of liability but is the first time a lender has agreed to make mandatory loan modifications.
Countrywide expects to be ready to start processing the loan modifications by December 1, but those homeowners in eminent danger of foreclosure or in foreclosure should contact the bank immediately at (800) 669-6607.
Bank of America is expected to operate its mortgage division under the Countrywide name until at least 2009. Neither B of A nor Countrywide is expected to reenter the subprime mortgage market.