January 29, 2009
• Posted in

The settlement provides a uniform and standardized approach to modifying loans to sustainable payment levels, establishing clear guidelines for servicing staff to follow in offering loan modifications. This anticipates:

  • Proactively reviewing loans with certain features for automatic loan modification eligibility. Eligible borrowers will receive notification of the modification, with the option of contacting Countrywide if more assistance is needed.
  • Home retention measures, which commit Countrywide to identify troubled borrowers, and perform outreach and foreclosure mitigation assistance to distressed borrowers, who are behind in mortgage payments and suffering from high loan-to-value ratios.
  • Options for crafting a loan modification that offers the borrower affordable payments in the present and also eases the borrower into a sustainable market rate loan for the future.

These goals are achieved with a number of loan modification options, including:

  • A reduction of the interest rate to as low as 3.5% for five years, at which time the loan will be converted to a fixed interest rate set at the greater of the Fannie Mae rate or the introductory interest rate on the loan. If that rate is still unaffordable, the reduced interest rate can be extended for another two years;
  • A reduction of the interest rate to as low as 2.5% with annual step rate increases, subject to a lifetime cap on the interest rate on the loan;
  • A 10-year interest-only modification, with an interest rate reduction to as low as 3.5% for these modifications and yearly step rate increases, subject to a lifetime cap on the interest rate on the loan.

Additional features include possible:

  • Principal reductions to 95% LTV for pay option ARM loans in which the borrower has no equity in the home.
  • Reasonable and sustainable debt-to-income guidelines, to lessen the possibility of borrowers with little or no equity in their homes from defaulting on the loan modification.
  • A hold on foreclosures while loans are being reviewed for eligibility, to ensure that homes are not lost during implementation of the Countrywide settlement.
  • Extension of payment and waiver of late fees, prepayment penalties, and other fees.

The Oregon settlement includes the above features, also:

  • Elimination of problematic products and services, such as certain subprime loans, non-traditional pay option ARM mortgages, and “low documentation” loans.
  • Continuing requirement to report directly to DOJ information on its borrowers and the loan modification and other relief processes.

National figures:

  • Countrywide anticipates it could offer as much as $8.4 billion in permanent payment relief to borrowers, including $800 million in relief in contractual discounts on loans, to as many as 397,000 subprime and pay option borrowers.
  • Additionally, Countrywide will fund $150 million in payments to borrowers who defaulted early in their loan terms.
  • Countrywide also asserts its commitment to a “soft landing” program for borrowers unable to retain their home, and projects $60-70 million in payments to over 30,000 borrowers through the end of 2010.

Oregon figures:

  • Countrywide will offers loan modifications to the approximately 4,600 sub prime and pay option Adjustable Rate Mortgage Oregon borrowers, which represents $915 million in unpaid principal balances.
  • Countrywide values the economic relief to Oregon borrowers at $90 million.
  • Countrywide also will give more than $1 million in foreclosure relief/mitigation to those borrowers already in or facing foreclosure, including relocation assistance payments and other programs. Of that figure, the Attorney General may designate up to $500,000 for foreclosure relief/mitigation programs, including allocution of funds for such programs to appropriate non-profit organizations or state agencies (such as the Oregon Department of Consumer and Business Services).

Countrywide Financial Corporation is a diversified financial marketing and service holding company engaged primarily in residential mortgage banking and related businesses, and was the largest mortgage lender in the U.S. The company was purchased by Bank of America in 2008 following widely-publicized problems relating to the mortgage crisis.

Oregon was not a lead state. California and Illinois initially reached independent settlements with Countrywide, alleging unfair practices in obtaining risky and/or inappropriate loans for consumers. California, Illinois and Iowa led a team from several states in reaching a multi-state agreement with Countrywide. That team negotiated the settlement, which was shared with the attorneys general of the remaining states, including Oregon, to individually deal with Countrywide.

The Oregon Department of Justice worked with other states and the state Department of Consumer and Business Services during the settlement talks.


Tony Green, (503) 378-6002 |