Bank of America has agreed to settle claims brought by state attorneys general regarding certain risky loans that originated by Countrywide Financial Corp, a deal that could be worth $8.6 billion, media report says.
"In a sweeping deal that could be worth more than $8.6 billion, Bank of America Corp has agreed to settle claims brought by state attorneys general regarding certain risky loans originated by Countrywide Financial Corp," the Wall Street Journal said.
The costs of the programme 'have already been estimated and accounted for' by Bank of America as part of its acquisition of Countrywide, a BoA spokesperson told the WSJ.
Quoting the spokesperson the daily said : "The deal would cover as many as 3,90,000 borrowers and would apply to borrowers who took out sub-prime loans with adjustable or fixed interest rates as well as those with option adjustable-rate mortgages that are serviced by Countrywide, which was acquired by Bank of America Corp on July 1."
Countrywide Financial Corporation is a diversified financial marketing and service holding firm engaged primarily in residential mortgage banking and related businesses.
The newspaper further said 'the cost of the program will be shared by Bank of America and investors who own securities composed of mortgages originated by Countrywide or by third parties who sold those loans to Countrywide.'
Under the terms of the deal, BoA has agreed to, where possible, modify the terms of these loans and will first try to refinance borrowers into government-backed loans under the federal Hope for Homeowners programme, which will generally require a reduction in the principal of the borrower's loan, the report said.
The spokesperson said another option the bank sees is to reduce the borrower's interest rate to make the loan more affordable. In some cases, borrowers' interest rates may be reduced to as low as 2.5 per cent.
For borrowers with option adjustable-rate mortgages, BoA will reduce loan amounts so that borrowers have as much equity, if not more than when they took out the option ARM, he told the WSJ.
BoA will not charge borrowers for modifying the loans and will waive any prepayment penalties for those with option ARMs, the daily added.
Bank of America has also set aside $150 million to provide relief for borrowers. Another $70 million has been put aside to provide financial assistance to borrowers who will lose their homes to 'help them get on their feet and leave the mortgage premises in good condition,' the spokesperson said.
While loan modifications would be offered nationally, the additional $220 million would be made available to residents of states that ultimately sign an agreement with BoA.
In addition to California, Florida and Illinois, attorneys general in a number of other states, including Arizona, Connecticut, Iowa, Michigan, North Carolina, Texas and Washington, are also expected to sign the agreement, WSJ said.
"Bank of America will begin sending offers to borrowers who qualify for a modification by December 1. Bank of America won't initiate or advance foreclosure sales for borrowers who are likely to qualify for a program until a decision has been made regarding borrowers' eligibility," the report added.