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Bank of America, which bought Countrywide in July, agreed yesterday to spend up to $8 billion to modify about 400,000 onerous subprime loans, including 8,000 in Ohio.
This settles a lawsuit against Bank of America and Countrywide by the attorneys general of 11 states, including Ohio's Nancy H. Rogers, who said the agreement will save homes from foreclosure by bringing about $97 million in relief to Ohio homeowners.
Rogers' office hopes the move sets an example for helping homeowners. "We are expecting other lenders to step up to the plate," said Andrea Seidt, the office's deputy chief counsel.
They might be forced to do so if they don't on their own.
The attorney general's office is investigating several lenders about possibly deceptive and fraudulent practices and could file lawsuits in conjunction with other states.
"I'm not at liberty to say which companies we're looking at," Seidt said. She added that the FBI also is investigating mortgage lenders for possible crimes.
Saving 8,000 homes is significant but represents a small percentage of the total number of homes facing foreclosure. In Ohio, 153,196 went into foreclosure in 2007, according to RealtyTrac, a California group that follows foreclosures. In the first eight months of 2008, 98,377 foreclosures were reported, a 7 percent increase from the same period of 2007.
The goal of the Bank of America/Countrywide agreement is to reduce that number in the next few years.
"Countrywide has only had 6,000 foreclosures in Ohio," Seidt said. "But their loans are just now hitting the crisis point, and there are a lot more foreclosures on the horizon."
Eligible Countrywide borrowers will be able to modify loans to create lower monthly payments through freezes or reductions in interest rates, a conversion to a fixed-rate loan, refinancing or reducing the principal.
Mortgage payments will be no more than 34 percent of homeowners' incomes, or 25 percent for those who do not escrow taxes and insurance.
"This will eliminate the notorious, hybrid adjustable-rate mortgages," Seidt said.
Under the terms of some of these mortgages, she said, borrowers were offered a teaser rate as low as 1 percent for the first two or three years. This then increased to 7 percent or 8 percent. In another type of loan, borrowers pay only interest, not principal, the first few years.
"Then, after a certain time period, there's a trigger, and the interest rate resets beyond the borrower's means," Seidt said.
The Countrywide loan-modification program will begin Dec. 1, and the company soon will start contacting eligible customers. Customers can call the company toll-free at 1-800-669-6607.
This might be the first agreement that addresses the root cause of the financial meltdown affecting Wall Street and Main Street, said Paul Bellamy, an attorney with the Equal Justice Foundation in Columbus. "And that's the loans themselves."
"The federal bailout has the opposite approach. It dumps money on the investor side, and everyone else has to fend for themselves," he said.
The legal-advocacy group that Bellamy is part of helps homeowners fighting foreclosures, which he said hurt individual homeowners and neighborhoods by driving down the price of real estate, creating a vicious cycle that forces more people into foreclosure.
"The industry has seemed paralyzed to do anything about it," Bellamy said. "But these kinds of efforts to really get at the root of the problem are our best hope to break this negative-feedback loop."
swartenberg@dispatch.com
To see more of The Columbus Dispatch, or to subscribe to the newspaper, go to http://www.columbusdispatch.com. Copyright (c) 2008, The Columbus Dispatch, Ohio Distributed by McClatchy-Tribune Information Services. For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.
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