Countrywide, State Reach Accord on Sub-Prime Complaint

TRENTON — The State of New Jersey has entered into a consent judgment with Countrywide Financial Corp. to resolve allegations that the mortgage banking and loan services company placed borrowers in risky, high-priced and ultimately unaffordable sub-prime mortgages, Gov. Jon S. Corzine announced in an April 2 release.
The judgment calls for a no-fee, streamlined loan modification program and creates a $3.67 million foreclosure relief fund for New Jersey borrowers and for state mortgage foreclosure mitigation programs.
“I am pleased by the agreement with Countrywide Financial,” Corzine stated. “These are homeowners who through aggressive sales and marketing of inappropriate or bad loans have lost their homes or are in danger of losing their homes.
This judgment dovetails New Jersey’s ongoing efforts through our Economic Assistance and Recovery Plan to help those who have lost their homes through foreclosure.”
Under terms of the consent agreement, the state will receive half of the $3.67 million to fund mortgage modification programs sponsored by various state agencies, including the statewide mortgage foreclosure mediation program administered by the state judiciary.
The remaining half will be available to sub-prime borrowers who have lost their homes to foreclosure after making six or less payments.
It is expected that an estimated 8,200 New Jersey borrowers will be assisted by the agreement. The $3.67 million is New Jersey’s pro rata share of a $150 million nationwide settlement, based on how many sub-prime mortgages Countrywide originated in New Jersey.
Countrywide agreed to specific loan modification programs and agreed to change its mortgage lending practices to closely monitor borrowers having trouble making their loan payments.
The company agreed to offer loan modifications or other workout solutions to borrowers who are delinquent in their payments and who want to remain in their homes. It also promised to make relocation assistance payments to homeowners who can no longer afford their homes even after they are offered modifications to their existing mortgages.
“We believe this agreement will significantly help consumers with mortgages originated and serviced by Countrywide to work out affordable payment plans that will allow them to remain in their homes,” Attorney General Milgram said. “The consent judgment will also support our own state’s initiatives to helping homeowners faced with declining home values and steep high-interest mortgage payments.’’
Countrywide has agreed not to begin foreclosure proceedings until it can be determined whether a borrower is interested in staying in his or her home and whether the borrower’s loan can be modified under the modification program.
The loan modification process should be completed within 60 days for eligible borrowers.
Under terms of the modification program, loans eligible for the streamlined modification are Countrywide sub-prime ARMs, Pay Option ARMS or other sub-prime residential mortgages for owner-occupied properties serviced by Countrywide and which began between Jan. 1, 2004 and Dec. 31, 2007.
The program is available to financially distressed borrowers whose loan to value ratio is greater than 75 percent and are borrowers who are seriously delinquent or who are at risk of becoming seriously delinquent because of a rate reset. The loan to value ratio is the ratio of the unpaid principal balance of a mortgage loan to the market value of the property.
(A Pay Option ARM allows borrowers the option of making a minimum payment and/or an interest only payment, which could lead to the loan balance going up each month rather than down because the interest is being added to principal. In a declining real estate market, borrowers then find their mortgages grow larger than the value of their home.)
Loan modifications would be designed for monthly payments that incorporate principal, interest, property taxes and insurance to fall between 34 percent and 42 percent of a borrower’s monthly income.
Depending on the type of loan, modification options will include interest rate reductions and caps, elimination of negative amortization, and interest only payments. For certain Pay Option ARMs where the loan to market value ratio is more than 95 percent, Countrywide has agreed to write down the principal balance to achieve a 95 percent ratio.
Loan modification fees will not be charged except in connection with those homeowners who receive help through the federal HOPE for Homeowners Program, a program created by Congress and administered by the U.S. Department of Housing and Urban Development (HUD) to provide FHA refinancing for distressed borrowers.
Pre-payment penalties will be waived in connection with any payoff or refinancing of a qualifying sub-prime mortgage loan or Pay Option ARM that had a first payment due date between Jan. 1, 2004 and Dec. 31, 2007.
Homeowners who will be unable to remain in their homes because loan modifications will still prove to be unaffordable may be helped with relocation assistance payments, which Countrywide estimates will average approximately $2,000.
The consent judgment requires Countrywide to give the Attorney General quarterly reports as to the status of the modification program. Additionally, Countrywide has appointed a compliance monitor who will be responsible for receiving and responding to the Attorney General as to complaints about the program
Countrywide, now a wholly-owned subsidiary of Bank of America, admitted to no wrongdoing in signing the consent judgment on Tuesday (March 31). The agreement applies to Countrywide Financial Corporation, Countrywide Home Loans Inc., Full Spectrum Lending Inc., and Countrywide Home Loans Servicing. Bank of America completed its purchase of Countrywide on July 1, 2008, and announced it suspended offering sub-prime and high cost mortgages such as Pay Option ARMs and ended a practice of issuing what are known as low-documentation or no-documentation mortgage loans.
The state had alleged in its complaint against Countrywide that the company increased its market share of home loan mortgages by engaging in unfair and deceptive business practices that placed borrowers in risky, high-priced mortgage loans. Specifically, the state charged sales practices placed borrowers in risky loans for which they were unqualified, structured unfair loan products, offered illusory teaser rates, and engaged in misleading marketing and sales techniques. The state further charged that the high priced loans placed borrowers at substantial risk of default.