Office of the Attorney General
Attorney General Conway Settles Allegations Of Predatory Lending With Countrywide Mortgage Company
Attorney General Jack Conway today announced a settlement resolving allegations of predatory lending practices against Countrywide Financial Corporation. Kentucky has joined other states requiring this sub-prime lender to provide loan modifications to assist up to 395,000 borrowers nationwide from a foreclosure relief fund of $150 million. Of this amount, $1.64 million is reserved for Kentucky borrowers. Approximately 2,500 Kentuckians will be offered loan modifications to restructure their Countrywide mortgage loans. Countrywide, which was acquired by Bank of America this past summer, has agreed to restructure more than $262 million of outstanding debt owed by Kentucky borrowers under this agreement.
This settlement resolves allegations that Countrywide developed and used unfair and deceptive practices in its loan origination and servicing business. Many Kentucky borrowers were sold mortgage loans which were unaffordable, leading to increased defaults and foreclosures. Under this settlement agreement, eligible borrowers will be offered the opportunity to modify their mortgage loans to make their monthly payments affordable. The program will cover borrowers with subprime mortgage loans, including adjustable rate loans with initial “fixed” teaser rates and pay-option adjustable rate mortgages.
“This mandatory loan modification program will provide immediate relief to Kentucky borrowers who are facing foreclosure. The goal is to help these borrowers remain in their homes into the future with an affordable mortgage loan,” General Conway said.
Eligible Countrywide customers will receive a letter from the Kentucky Attorney General’s Office and Bank of America. These letters will be mailed as soon as this new program is implemented. Customers who meet the following four criteria will receive a letter offering to modify the terms of their mortgage loan:
- Must hold a Countrywide-originated mortgage loan, secured by owner-occupied property;
- First loan payment was due between December 21, 2004 and December 31, 2007;
- Loan has been foreclosed or was more than 120 days delinquent on October 8, 2008; and
- Six or fewer payments were made over the life of the loan (the Attorney General in consultation with Bank of America retains authority to expand coverage if warranted).
As part of this agreement, Countrywide has agreed to a range of “best practices” changing its future lending practices. In the Assurance of Voluntary Compliance filed today in Franklin Circuit Court, the company denies all allegations against it and does not admit to any wrongdoing. However, the following changes shall be implemented by Countrywide and Bank of America including:
- The suspension of foreclosure sales on loans likely to qualify for the loan modification program until an affirmative decision has been made on the borrowers eligibility;
- Establish an early identification and contact program for borrowers who are having problems making their monthly payments;
- Discontinue offering pay option adjustable rate mortgages and curtailing the offering of “low-documentation” or “no-documentation” loans;
- Establish a Foreclosure Relief Fund of $8.5 million nationwide to provide payments to borrowers who lost their home through foreclosure where the borrower was sold a subprime or pay option ARM loan and the borrower defaulted early during the loan term (within 6 months after closing) or at the time the interest rate reset. These loans were not properly underwritten and these homeowners could not afford the loan from the inception.
- Establish a fund to assist borrowers who do not qualify for loan modification. Payments from this fund will be made to borrowers for relocation assistance;
- Loan modification and late fees will be waived; and
- Countrywide will waive prepayment penalties on subprime and pay option ARM loans.
Bank of America’s Nationwide Homeownership Retention program for Countrywide customers is currently under development. If you have a Countrywide mortgage loan and would like additional information about these programs or whether you are eligible for relief under this settlement, please visit Countrywide’s website at www.countrywide.com . A fact sheet is also available for you to review. Countrywide customers can also call toll-free at 1-800-669-6607. Anyone facing imminent foreclosure should call immediately.