BofA in $8.6 bn settlement over Countrywide loans

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Oct 6 : Bank of Americahas agreed to settle claims brought by US state attorneys-general regarding certain risky loans originated by Countrywide Financial Corp, it said on Monday, in a deal that could be worth more than $8.6 billion. The deal, covering nearly 400,000 borrowers, applies to people who financed their homes with subprime loans or pay-option adjustable-rate mortgages serviced by Countrywide that originated before Dec 31, 2007, Bank of America said in a statement.

Countrywide was once the largest US mortgage lender before being acquired for about $4 billion in stock by Bank of America in July when its risky subprime mortgage loans began to fail.

The programme is centred around a loan modification process, valued up to $8.4 billion, aimed at providing relief to eligible borrowers who are "seriously delinquent" or are likely to become so due to loan features, such as rate resets or payment recasts.

About 12% of the eligible loans are held by Bank of America and the cost of the restructuring these loans is "within the range of losses we estimated when we acquired Countrywide," Bank of America said. The options of the programme include trying to refinance borrowers into government-backed loans under the federal Hope for Homeowners program and lowering interest rates.

For borrowers with option adjustable-rate mortgages, the principal will be reduced so that lost equity will be restored for certain borrowers.

Under the programme, for eligible Countrywide-serviced customers who occupy the home as their primary residence, borrowers will not be charged loan modification fees and prepayment penalties for subprime and pay option ARM loans will be waived, the bank said. A $150 million has been set aside for borrowers in certain states who suffered foreclosure or are currently at serious risk of foreclosure having made only minimal payments since the time their mortgages were originated by Countrywide, the bank said. An additional $70 million has been set aside to provide customers who face imminent foreclosure with financial assistance with their transition from home ownership, the bank added.