An $8.4 billion settlement announced Monday between Bank of America and the attorneys general of 11 states could provide a template for Treasury Department efforts to rework the mortgages it will soon acquire, Washington Attorney General Rob McKenna said Tuesday.
The relief package could help an estimated 400,000 borrowers nationwide who obtained mortgages from Countrywide Financial Corp. between Jan. 1, 2004, and Dec. 31, 2007.
Bank of America purchased Countrywide on July 1.
Once the nation’s largest independent home-mortgage lender, Countrywide was sued by several states who alleged the company engaged in predatory lending practices.
In Washington, 42 percent of subprime hybrid adjustable-rate mortgages sold by Countrywide are delinquent, as are 24 percent of its fixed-rate subprime loans and 11 percent of its pay-option arms.
As many as 10,000 state residents could be assisted by the $200 million that will be dedicated to resolving Washington claims, McKenna said.
The settlement will allow Countrywide customers to arrange more affordable loans by freezing or reducing interest rates, converting ARMs to fixed-rate loans, or refinancing the principal. Initial rates could be as low as 2.5 percent. Payments cannot exceed 34 percent to 42 percent of household income.
Borrowers who have already lost their homes could be entitled to relocation assistance of about $2,000, depending on how many apply, McKenna said. Those still in their home but with little hope of staying current on their loans will also be eligible for aid, he said.
McKenna said borrowers will be contacted by Countrywide, but he encouraged those who may benefit to call (800) 669-6607, or go to www.countrywide.com.
“We don’t know how many people will come forward,” McKenna said.
The $700 billion Wall Street bailout package enacted last week allows the Treasury Department to restructure the subprime mortgages it will acquire in an effort to restore liquidity to the credit markets. The goal is to keep more borrowers in their homes.