Image via WikipediaNearly 400,000 U.S. homeowners may soon be able to secure more affordable home loans after Bank of America agreed yesterday to a mandatory loan modification program that impacts loans originated with its Countrywide Financial unit.

The development — which is a result of claims brought by attorneys general in 11 states that accused Countrywide of misrepresenting loan terms and more — could be worth as much as $8.4 billion to homeowners nationwide, and is by far the largest predatory lending settlement in U.S. history.

According to Bank of America, Countrywide’s mortgage servicing staff will contact eligible borrowers nationwide starting December 1, 2008. Bank of America also says all Countrywide-related foreclosure sales will not be “initiated or advanced” for borrowers likely to qualify under the settlement.

While the settlement was reached as a result of charges brought against Bank of America and Countrywide by the attorneys general representing Arizona, California, Connecticut, Florida, Illinois, Iowa, Michigan, North Carolina, Ohio, Texas and Washington, the loan modification program will be available in all 50 states, and preliminary estimates indicate nearly 400,000 borrowers nationwide may benefit.

The mandatory loan modification program — which is technically called the “Home Ownership Retention Program for Countrywide Customers” — is said to provide relief to homeowners who were put into the riskiest types of loans. State-by-state relief estimates from those states which forced the settlement include:

• Arizona: As many as 15,700 Arizonans should receive relief from the Home Ownership Retention Program for Countrywide Customers. In August 2008, Arizona ranked third in the nation for foreclosures. According to statistics released last month by RealtyTrac, more than 14,000 Arizonans were in or facing foreclosure in August 2008. This was a 67 percent increase from August 2007.
• California: As many as 124,000 struggling California homeowners could see their monthly mortgage payments lowered as a result of the settlement. California continued to document the nation’s second highest state foreclosure rate, with one in every 130 households receiving a foreclosure filing in August of this year (said differently, foreclosure filings were reported on 101,724 California properties in August, one-third of the national total and the most of any state.) California’s foreclosure activity increased more than 40 percent from the previous month and more than 75 percent from August 2007.
• Connecticut: Countrywide has agreed to provide relief to as many as 4,800 troubled Connecticut homeowners with various subprime mortgages who are facing foreclosure or struggling as a result of its business practices. Connecticut ranks 17th in the nation in foreclosure activity. One out of every 797 properties received a foreclosure filing in August, down by more than 10 percent over the previous month, and down more than 17 percent from the same time last year.
• Florida: The Home Ownership Retention Program for Countrywide Customers could provide nearly $1 billion in total relief for as many as 60,100 Florida homeowners. Florida posted the second highest total of foreclosure activity in August of this year, with foreclosure filings reported on 44,000 properties during the month — a 4 percent decrease from the previous month but still up nearly 30 percent from August 2007. One in every 194 Florida properties received a foreclosure filing in August, the nation’s fourth highest state foreclosure rate.
• Illinois: As many as 13,600 Illinois borrowers are expected to receive a loan adjustment, representing nearly $185 million in modifications. Illinois foreclosure-associated problems are well documented. In August of this year, the state ranked the 9th worst in the nation for foreclosure-related activity. One in every 483 properties in Illinois received a foreclosure notice in August, and the state continues to rank as one of the hottest spots in the nation for real estate and mortgage fraud.
• Iowa: As many as 1,300 Iowans will be offered mortgage loan modifications that will help many people avoid foreclosure and losing their homes. Iowa ranks 39th in the U.S. for foreclosure-related activity, with one in every 1,982 properties receiving a foreclosure notice in August. While that number may seem low when compared to other states, Iowa’s problems were nearly 34 percent worse than in the previous month.
• Michigan: The Home Ownership Retention Program for Countrywide Customers may impact as many as 13,600 mortgage holders in Michigan, giving families an opportunity to keep their homes, and saving them approximately $129 million as a result of more favorable terms. Like Illinois, Michigan’s foreclosure woes are well known. Despite a nearly 13 percent annual decrease in foreclosure activity, Michigan documented the nation’s fourth highest state foreclosure total in August, with foreclosure filings reported on 13,605 properties during the month (that’s about one filing for every 332 properties).
• North Carolina: As many as 6,400 North Carolina borrowers are expected to receive relief from the settlement. North Carolina currently ranks 23rd in the nation for the number of properties receiving foreclosure notifications (one in every 876).
• Ohio: As many as 10,200 Ohioans will be offered mortgage loan modifications that will help thousands of Ohio families avoid foreclosure and stay in their homes. The potential economic relief to borrowers in Ohio from the modification program is estimated to be about $97 million. Depending on the type of loan, about one-fourth to one-half of all Countrywide subprime loans in Ohio are delinquent.
• Texas: Bank of America estimates that up to 33,700 Texas homeowners will qualify for the loan modification program. Texas ranks 20th in the nation for foreclosure-related activity.
• Washington: As many as 10,000 Washington homeowners will receive about $200 million in payment relief. In the state of Washington, 42 percent of Countrywide’s subprime hybrid arms, 11 percent of pay option arms, and 24 percent of largely fixed-rate subprime loans are delinquent.

For anyone interested in a more complete state-by-state breakdown, here’s what Bank of America provided to Flipping Frenzy upon request:

In a nutshell, the final settlement, which can be read in its entirety here, will enable eligible mortgage borrowers to avoid foreclosure by obtaining a modified and more affordable affordable loan.

The loans covered by the settlement are among the riskiest and highest defaulting loans at the center of America’s mortgage meltdown and financial crisis. Assuming every eligible borrower and investor participates, the Home Ownership Retention Program for Countrywide Customers will provide up to $8.4 billion in relief within the next 12 to 18.

As a result of the settlement:

• In participating states, the agreement provides up to $150 million in payments to borrowers who defaulted early in their loan terms, while committing to a “soft landing” program to help borrowers who are unable to retain their homes with relocation costs.
• Countrywide no longer offers subprime, high cost or negative amortization mortgages and has significantly curtailed no- and low-documentations loans.
• Broker compensation will be limited to 4 percent of the amount borrowed.
• Countrywide will retain, until at least July of 2009, a minimum of 3,900 staff to assist with loan modifications and other foreclosure avoidance measures.
• Countrywide will waive late/delinquency fees for missed payments when modifying loans and will not charge modification fees to borrowers in the participating states.
• When possible, Countrywide will waive prepayment penalties in connection with any workout or refinance, whether or not the new loan is originated with Countrywide.

Borrowers who are eligible for loan modifications under the settlement must have received a qualifying subprime mortgage or a Pay Option adjustable rate mortgage prior to December 31, 2007, in addition to meeting other requirements, including:

• The borrower is 60 days or more delinquent and the current loan-to-value ratio is 75% or higher
• The borrower is current today but becomes 60 days or more delinquent at any time prior to June 30, 2012, and the loan-to-value ratio at the time of the modification is 75% or higher
• If the borrower has a subprime hybrid ARM and the borrower is current but reasonably likely to become 60 days or more delinquent as a consequence of a rate reset, and the loan-to-value ratio at the time of the modification is 75% or higher
• If the borrower has a Pay Option ARM and the borrower is current but reasonably likely to become 60 days or more delinquent as a consequence of a rate reset or payment recast based on negative amortization, and the loan-to-value ratio at the time of the modification is 75% or higher
• The property is a 1-4 unit owner-occupied residential property

In addition, Countrywide customers may be eligible for the early payment default benefit of this program if:

1. The customer has a Countrywide-originated first lien loan
2. The loan was made between January 1, 2004 and December 31, 2007
3. The customer’s primary residence is the property that secures the loan
4. The customer has made three or fewer payments over the life of the loan (the borrower’s state may expand eligibility)
5. The customer has either lost his home to foreclosure or is at least 120 days in arrears on mortgage payments.

Loan Modification Program Details

Countrywide says it will first offer eligible borrowers an FHA refinance under the HOPE for Homeowners Program. If not eligible for that program, Countrywide will offer these specific programs based on product type.

Subprime 2-, 3- 5-, 7- and 10-Year Hybrid ARM borrowers will receive an unsolicited extension/restoration of the introductory rate for five years and an invitation to contact Countrywide for additional relief if affordability concerns persist. Borrowers who cannot afford the introductory rate will be considered on a streamlined basis for a five-year interest rate reduction to as low as 3.5% (based on the affordability equation) and a conversion to a fixed-rate mortgage at the end of five years.

Pay Option ARM borrowers accepting a streamlined loan modification option will have the negative amortization feature eliminated from their loan. The mortgage interest rate will be reduced to as low as 2.5%, and the loan will be converted into either a fixed-rate mortgage or a ten-year interest-only loan. For single property owners who currently have no equity in their homes, Countrywide will write-down the principal balance to as low as 95% of the current value of the property to restore an equity position.

Subprime Fixed-Rate borrowers will receive a streamlined loan modification, by reducing the mortgage interest rate to as low as 2.5% and converting the loan into a fixed-rate or 10-year interest only loan with affordable step rate increases and lifetime cap.

Loan modification programs will provide payments within the limits of an Affordability Equation set out in the agreement and be targeted to equate to 34% of the borrower’s household income.

The following additional programs are available to Countrywide borrowers in the 11 states states participating in the agreement.

Soft Landing Program: Countrywide borrowers facing foreclosure who agree to voluntarily leave the premises at the time of the foreclosure sale will be provided with a cash payment. Countrywide anticipates payments to 35,000 borrowers in a total amount of more than $70 million to assist with relocation costs.

Early Payment Defaults: Countrywide will allocate up to $150 million nationally under an Early Payment Default program to provide relief for borrowers whose loans were originated directly by Countrywide (or through brokers) with owner-occupied properties who have either experienced a foreclosure sale or are 120 days or more delinquent as of the date of this agreement. These borrowers will be eligible for the payment if they made three or fewer payments over the life of the loan (or meet more inclusive criteria determined by each state). will be allocated for each state through a pro-rata formula based on the number of eligible borrowers with a Countrywide-originated first mortgage.

The Countrywide parties to the settlement include parent Countrywide Financial Corporation, Countrywide Home Loans and Full Spectrum Lending.