Countrywide Financial has agreed to the largest program ever to modify home loans; just days after the US government adopted a giant financial rescue package without any relief for distressed homeowners.
The Countrywide effort is the most comprehensive, mandatory loan workout program since the mortgage crisis began last year. Congress has proposed various programs, but those measures did not make it into the final $700 billion government bailout. I get asked about this rescue plan if it would help homeowners, there is your answer. Since taking control of Fannie and Freddie Mac, the two housing giants, the Federal Housing Finance Agency has said it is looking at expanding modifications on the loans that Fannie and Freddie own or guarantee.
After seizing IndyMac, the Federal Deposit Insurance Corporation began a loan modification program that it said could be a template in other takeovers. The agency hopes to help tens of thousands of borrowers whose interest rates are being reset higher in the early stages of that program.
It is encouraging people who have fallen severely behind on their payments or who have defaulted to switch into a fixed-rate mortgage at current rates of about 6 percent. Countrywide has made pledges before to modify large swaths of loans. Late last year, it vowed to help about 82,000 borrowers who were facing higher payments through 2008. But the new program will be mandatory and will be monitored by state officials.
Along with the direct relief, Countrywide will waive late fees of $79 million and prepayment penalties of $56 million and suspend foreclosures on delinquent borrowers with the riskiest loans.
A foreclosure relief fund will be created with $150 million from Countrywide to help borrowers who are four months or more behind on their payments or whose homes have already been foreclosed on. The company will also provide $70 million to help troubled borrowers relocate to rental housing. In all, Countrywide is setting aside $8.7 billion to help borrowers.
Under the terms of the settlement, Countrywide will reduce principal balances in some cases and cut interest rates in others. Rates could decline to 2.5 percent, depending upon a borrower’s ability to pay, and remain at that level for five years. Then the rate will adjust to prevailing interest rates charged by Fannie Mae on its fixed-rate mortgages.
The program will focus on borrowers who were placed in the riskiest loans, including adjustable-rate mortgages whose interest rates reset significantly several years after the loans were made. Pay-option mortgages, under which a borrower must pay only a small fraction of the interest and principal, thereby allowing the loan balance to increase, are also included in the modifications.
Borrowers whose first payment were due between Jan. 1, 2004, and Dec. 31, 2007 can participate. The loan balance must be at least 75 percent of the current value of the home, and the borrower must be able to afford the adjusted monthly payments.
The program will be administered by state officials who will examine regular reports from Bank of America. The program will begin Dec. 1 as Bank of America contacts borrowers. In the meantime, Bank of America said Countrywide customers can call 800-669-6607 to discuss their loans.
Take note this process will be available but not for everyone. If you have a fixed rate mortgage, this will not qualify you. If you have no ability to show income or enough income to qualify for your own loan, you will not qualify. If this is an investment property, this also will not qualify. If you have a second lender other than Bank of America or Countrywide, they have to voluntarily agree to reduce or wipe out the debt.
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Call Ken Go of 1st Innovative Finance if you have any questions; remember no such thing as a stupid question. (562) 697–7028 or write to This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
(www.asianjournal.com)
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