Attorney General Richard Blumenthal today announced an agreement with Countrywide Financial Corp. providing mortgage relief and potentially sparing foreclosure for thousands of Connecticut homeowners.
In July, Blumenthal sued Countrywide for allegedly pushing consumers into deceptive, unaffordable loans and workouts.
The mortgage giant, now owned by Bank of America, has agreed to provide relief to as many as 4,500 troubled Connecticut homeowners with various subprime mortgages who are facing foreclosure or struggling as a result of Countrywide's practices.
Blumenthal settled in coordination with Department of Consumer Protection (DCP) Commissioner Jerry Farrell, Jr.
Blumenthal said. "This settlement will cost Bank of America as much as $8.6 billion, but no cost, not a dime, to taxpayers. My hope is that this result provides a framework or template that we can convince other mortgage lenders to adopt in rescuing homeowners facing foreclosure.
"Many homeowner interest rates will be reduced and mortgage payments generally will not exceed 34 percent of monthly income. Certain mortgage amounts will be reduced to reflect actual home values -- no more than 95 percent of that amount.
Blumenthal added, "Countrywide must now bail out homeowners it recklessly misled into mortgages doomed to fail. This loan lifeline will rescue thousands of homeowners drowning in debt, and impose responsibility on a reprehensible mortgage giant. Approximately 4,500 Countrywide consumers strapped to subprime loans may be eligible for safer and saner loan alternatives -- saving them from foreclosure or other financial doom.
"My office sued Countrywide for deliberately doctoring documents and inflating homeowner incomes -- tactics used to lure consumers into impossible loans. Countrywide capitalized on hardships resulting from subprime loans by imposing bad workout deals and unconscionable fees.
"These practices turned the American dream into a nightmare -- devastating Countrywide consumers across the nation, and exacerbating a vast economic crisis."
Commissioner Farrell said, "In these harsh economic times, when government is being called upon to bail out financial institutions for their unsound business practices, this settlement sends an important message to those responsible for defrauding consumers -- they will be held accountable."
The agreement -- also reached with California and Illinois -- requires Countrywide to offer a range of more desirable and feasible alternatives to consumers currently struggling to make payments on their subprime loans. Each consumer will be evaluated for eligibility on a case-by-case basis and offered a solution when possible. During this evaluation, Countrywide will agree not to initiate a new foreclosure, or to advance a pending foreclosure against consumers who are being considered for assistance under this program.
Those options, depending on the consumer, may include:
- an FHA refinance under the HOPE for Homeowners Program;
- interest rate reductions;
- restoration of the introductory rate on the borrower's mortgage for five years;
- a streamlined individualized loan modification process, which may include substantial interest reductions, both immediately and permanently;
- a writedown of the principal balance for borrowers who are single property owners and currently have no equity in their homes to as low as 95% of the current value of their properties;
Countrywide has also agreed to stop dealing in subprime and certain other nontraditional high-risk mortgages and to adopt procedures to ensure that its employees and agents engage in "the very highest degree of ethical conduct."
Blumenthal's lawsuit had alleged that Countrywide violated state consumer protection and banking laws by:
- Encouraging consumers to take out loans the company knew or should have known they could not afford;
- Improperly inflating consumers' incomes to qualify them for loans they otherwise could not have received;
- Providing loans with different and more expensive terms than consumers were promised;
- Pressuring consumers into mortgages with temporary interest only payment options when the company knew or should have known they could not afford the higher payments that would come due later;
- Providing variable rate loans to consumers with the assurance they could refinance before interest rates reset, only to later refuse to do so;
- Sending at least one consumer rejected for a home equity loan at one Countrywide office to another company branch where the loan request was approved;
- Promising to help homeowners "in financial difficulty to establish suitable payment plans," but instead demanding loan modifications and repayment plans that were unsustainable, unaffordable or unsuitable.
For more information, and to find out if they are eligible to participate, homeowners should contact Countrywide directly at 1-800-669-6607.
View the entire Countrywide Settlement Sheet - (PDF-95KB)
