Countrywide settles state lending practices suits for $8.4 billion
- United States
- 10/06/2008
Officials for Bank of America announced Monday that they have agreed to an $8.4 billion settlement in response to allegations by 11 state attorneys general that subsidiary Countrywide Financial engaged in deceptive business practices that harmed consumers. California Attorney General Jerry Brown, a leading figure in the negotiations, sued Countrywide in June, claiming that the company and some of its officers encouraged the purchases of risky, complex loans so that the company could then sell those loans and make a profit. Under the terms of the agreement announced Monday, eligible subprime and pay-option mortgage borrowers from the 11 states will receive loan modifications under a “home retention program” allowing them to afford their mortgages, and some will receive interest-rate reductions and waivers of penalties. In addition, Bank of America agreed to temporarily stop offering subprime mortgages. Bank of America Chief Financial Officer Joe Price said in a press statement:
Our program represents principal and interest reductions over time to borrowers on loans Countrywide owns and on loans Countrywide services on behalf of investors. By taking projected foreclosure losses and instead directing those funds into these proactive foreclosure prevention efforts, we create a solution in the best interests of both our customers and the investors whose loans and securities we service.
State officials will run the mandatory program, which is scheduled to begin on December 1.
In July, the Federal Reserve Board approved new rules for home mortgage loans designed to reduce unfair lending practices and increase consumer protection. In June, the Federal Bureau of Investigation (FBI) announced that more than 400 people had been indicted for fraud involving individual mortgages and the US Attorney’s Office for the Eastern District of New York announced the indictments of two senior hedge fund managers at Bear Stearns for allegedly misleading investors even after they knew their mortgage-related funds were at serious risk of collapse.
