In a deal that could be worth more than $8.6 billion, Bank of America (BAC) according to WSJ, has agreed to settle claims brought by state attorneys general regarding certain risky loans originated by Countrywide Financial. The settlement applies to borrowers who obtained their mortgages through Countrywide, which Bank of America acquired on July 1 at the same time Illinois and California sued the company.
The deal, expected to be announced Monday, would cover as many as 390.000 borrowers and would apply to those who took out subprime loans with adjustable or fixed interest rates as well as those with option adjustable-rate mortgages that are serviced by Countrywide.
The cost of the program, said the Journal, will be split by BofA and investors who own securities that have mortgages originated by Countrywide or by third parties who sold those loans to Countrywide. The eligible mortgages were originated prior to Dec. 31, 2007.
Under the terms of deal, Bank of America has agreed to refinance borrowers into government-backed loans under the federal Hope for Homeowners program. Other options include term loan modification, where possible, and reducing interest rates, in some cases to as low as 2.5% then increase it in a stepwise fashion over time, and adjusting principal so that borrowers don’t wind up actually losing equity under some payment plans.
The modification program is valued at $8.4 billion and the cost of the program “have already been estimated and accounted for” by Bank of America as part of its acquisition of Countrywide, BofA spokesman told WSJ.
California Attorney General Edmund G. Brown Jr. said in a statement that Countrywide settlement is likely to become the largest “predatory lending” settlement in history.
Countrywide has faced civil lawsuits from a number of states, including California, Florida and Illinois which have played a key role in negotiating the settlement. The other states joining the settlement are Arizona, Connecticut, Florida, Iowa, Michigan, North Carolina, Ohio, Texas and Washington.
Bank of America will launch the new mortgage aid program by December 1.
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