'Bank of America in $8.6 bn deal over Countrywide loans'

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Bank of America has agreed to settle claims brought by state attorneys general regarding certain risky loans originated by Countrywide Financial Corp in a deal that could be worth more than $8.6 billion, the 'Wall Street Journal' said.

The deal, to be announced on Monday, would cover as many as 390,000 borrowers, a Bank of America spokesman told the paper.

The deal would apply to borrowers who took out subprime loans with adjustable or fixed interest rates as well as those with option adjustable-rate mortgages that are serviced by Countrywide, the paper said.

The cost of the program will be split between the bank and investors who own securities that have mortgages originated by Countrywide or by third parties who sold those loans to Countrywide.

Under the terms of the deal, Bank of America has agreed to, if possible, modify the terms of the loans and will first try to refinance borrowers into government-backed loans under the federal Hope for Homeowners program, which will require a cut in the principal, the Journal said.

Another option would be to lower the interest rate -- in some cases to as low as 2.5 percent -- and then raise it over time, a Bank of America spokesman told the paper.

For borrowers with option adjustable-rate mortgages, the bank will lower loan amounts so that borrowers have as much equity, if not more, than when they took out the option ARM, a spokesman told the paper.

The modification program is valued at as much as $8.4 billion and the costs of the program "have already been estimated and accounted for" by Bank of America as part of its acquisition of Countrywide, the spokesman told the paper.

California, Florida and Illinois, where Countrywide has faced civil lawsuits, played a key role in negotiating the settlement, the spokesman told the paper.

Besides these three states, attorneys general in Arizona, Connecticut, Iowa, Michigan, North Carolina, Texas and Washington, are also expected to sign the agreement, the spokesman told the paper.