Tuesday, October 7, 2008

What You and Your Clients Need to Know About Yesterday's $8 Billion Countrywide/Bank of America Settlement

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com

What you need to know about yesterday's $8+ billion Countrywide settlement:

Oregon is NOT yet part of the 11-state settlement, but Washington and California are. Oregon may very well be part of the settlement soon. Also this settlement may well be a model for future similar agreement, so it is worth having a general understanding of it now. I will report on future developments about the situation in Oregon, perhaps within days.

What is this a settlement of? It is the largest ever predatory lending settlement in history. It resolves many but not all lawsuits filed by states' attorneys general, led by Illinois' Lisa Madigan and California's Jerry Brown, alleging that Countrywide Financial or one of its affiliates intentionally sold customers risky loans that it knew were unaffordable, using deceptive advertising and rewarding staff for promoting loans with higher rates and fees than customers qualified for. Some states' lawsuits were not included in this settlement and so continue, and other lawsuits by the states who settled continue against individual defendants, including Countrywide's CEO. Bank of America acquired Countrywide on July 1.

Who are eligible homeowners? Only those who entered into subprime and pay-option adjustable rate mortgages with first payments due between January 1, 2004 and December 31, 2007, involving real estate occupied by the borrowers as their primary residence. The rationale is that these loans are the ones most at risk for default and foreclosure. The number of affected mortgages: about 400,000 within the 11 states in this settlement. To qualify the loans must be seriously delinquent or likely to become so because of upcoming interest rate or payment increases.

What are the terms of the agreement? It is a mandatory loan-modification program, containing a number of components. Some loans will be FHA refinanced through the HOPE for Homeowners Program. Countrywide will refinance other loans directly, reducing balances and/or interest rates, to as low as 2.5%, depending on the borrowers ability to pay, holding at that level for five years and then adjusting to the then-prevailing Fannie Mae fixed-rate interest rate. The new monthly payment amounts for principal, interest, insurance and taxes will be based on 34% of monthly income.

The majority of the cost of the settlement is for these loan modifications, but $79 million is dedicated for waivers of loan modification fees and $56 million for waivers of prepayment penalties. $150 million is for a foreclosure relief fund for those homeowners 4 months or more behind on their payments or whose mortgages have already foreclosed. Another $70 million fund will help borrowers who cannot refinance relocate to rental housing.

The loan modification program is scheduled to be ready for implementation on December 1, 2008. Foreclosures are not to be started or continued for borrowers likely to qualify until the lender makes "an affirmative decision on borrower's eligibility."

There is a Countrywide borrowers' hotline for more information at 1-800-669-6607, and also at www.countrywide.com.

by: Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys

Please note that this writer is not licensed to practice law in Oregon. This means that he is not legally permitted to give any legal advice or provide and legal services. This Bulletin and the entire contents of this website is written only for attorneys. and is not intended for the public. If any non-attorney is reading this, you must consult an attorney about ANYTHING you read here. Nothing in this website is intended to be nor should be read as being legal advice to anyone.

© 2008 Bankruptcy Litigation Support for Attorney