Countrywide workout: Partial foreclosure freeze, 3.5% rates

Under the $8.7-billion loan workout program that Bank of America will announce today for Countrywide borrowers, interest rates will be slashed as low as 3.5% for some borrowers, and foreclosures will be frozen for thousands of borrowers who might qualify.

Highlights from the Los Angeles Times:

An estimated 125,000 Californians who are struggling with risky mortgages from Countrywide Financial Corp. may get their loans modified and payments reduced under a program to be announced today.

... Bank of America said Countrywide mortgage-servicing employees would be trained to carry out the program by Dec. 1 and would then begin reaching out to eligible customers. The plan includes a foreclosure freeze for borrowers who are likely to qualify until Countrywide has determined their eligibility, the bank said.

... The program will first identify customers who have fallen behind on their mortgages by more than 60 days or are likely to do so because of loan features such as rate or payment increases, said Benjamin Diehl, a California Department of Justice attorney. These customers will be contacted by Countrywide starting Dec. 1.

Various options will be considered for eligible customers, with employees handling the workouts instructed to first consider refinancing into a fixed-rate Federal Housing Administration loan, Diehl said.

The options on subprime mortgages also include keeping the initial rate for five or 10 years, having the borrowers pay interest only and reducing the interest rate to as low as 3.5%, Diehl said.

Two cents: Who says you can't get a good loan these days? As long as you've already got a bubble-vintage subprime loan, there are all kinds of good options available.

-- Peter Viles

Your thoughts? Comments? E-mail story tips to Peter Viles.

Comments

[xtine]

Radiomantodd - stop patting yourself on the back.

If you can't afford for the paper value of your house to go down, you can't afford the loan.

If you can't put money down, you can't afford the house.

If you got a fixed rate, and are making the payments, there is no reason for you to walk away. Period.

[bassist]

Folks, isn't it interesting how this all happens after the bailout? Well, that's because the government is going to buy all those bad loans with your tax dollars and re-negotiate them to keep borrowers in their homes!

[TC]

Check Section 110 of the bailout. bassist is correct.

You tax dollars are what BofA will use and they will sell these bad loans to the Feds but remain the servicer of these loans and also collect fees for doing so.

Section 110 sets up unlimited power to a "Federal Property Manager" yet makes no stipulations and provides little oversight. Corruption is gonna run rampant.

As soon as my mortgage company sets up their taskforce I am all over this. Maybe I can rework my loan principle and interest rate. WAHOOOO

[Maggie Knowles]

This is the moment the banks have been waiting for. Now they can start moving the $700B from U.S. to T.H.E.M.

[Laker]

Let me tell you how you can benefit today from all these mods and short sales.
I know of a couple that bought a house in 2000 for $200,000 with 10% down. They cash refinanced it in 2003 (pulled $250,000) , and then in 2006 refinanced it again (pulled another $550,000) Their last mortgage payment were about $4,000 per month before taxes.
Last month, they did a short sale to the brother of the wife. (Brother lives in a east European county but has SSN and thus some credit). So they got an appraisal for the place at $500,000 and they "found" a buyer (the brother) that offered $480,000 with 15% down...
You ask how did they figure this number?
Simply, the brother with no income, managed to get a stated income of $417,000 with a 15% down and fees to be $480,000 purchase price. The couple will not pay the new mortgage of $417,000 at (I think) 5.5% to be about $2,400 before taxes.

So, they now save about $1600 a month with a fixed 30 year. The property taxes are almost the same. AND....
they have pulled about 250K+550K-72K = $728,000 CASH. I was told they have spent about $200,000 from the 1st refi on toys, vacations, BMWs, and boob job.
However, they have about HALF MILLION DOLLARS in their bank account....and a $1600 savings every month ...and they have same house....

THANK YOU PAULSON AND HELICOPTER BEN...and the TAX PAYERS OF COURSE.....

[Crash and Burn]

This is simple economics, if the banks know if they foreclose they’ll get 30 to 70 cents on a dollar, they absolutely would love to be receiving 103 cents on a dollar for the next few years given they have absolutely nowhere they want to put this money anyway except to hoard it in the vault and pray that they get through this recession above water. Now if you were a bank would changing the profit from 106 to 103 cents on a dollar make more sense than getting 50 cents? It’s a freaking no brainer.

These people are emotionally attached to their house and if they can continue to afford a 3% interest, but not a 6% this is a great deal for the banks for people to remain overpaying for an asset (103 cents instead of 50 cents). Even extending these people for 1 or 2 years before foreclosure means they’ll pay a little more and they’ll spread the foreclosures out over a little longer time causing less of an oversupply in foreclosures which while good for the economy by forcing price realizations, are bad for banks because they make their balance sheets look more realistic. Although ultimately the house may be less if the people end up foreclosing two years down the road, these banks are in survival mode now and don’t give a hen’s arse about limiting the downside (if they go under by 1 penny or 99 billion, they are gonners, so it doesn’t really matter), but by all means want to make it look like they can cover their balance sheet. This is the whole reason Bailout Lite 1.0 (federal guarantees for home loans if banks readjust mortgage terms) for houses made absolutely no sense, as there is no reason for incentives to give banks to renegotiate terms, as it is totally beneficial to the banks to work out their loans. The good thing is it seems that Bailout Lite 1.0 was written more to help home owners than the banks, so most banks seem like they don’t want to touch that program because it involved resetting the principle to market rates, which means they would have to realize a loss, which isn’t much different than a foreclosure but takes longer to get your cash (foreclosure = hard cash immediately, renegotiate = a little more of payment over time with government promised backing).

Obviously cutting the interest rate in half isn’t going to make an unaffordable house affordable, but it could add enough incentive to a lot of people to not walk away, and suck up their bad loans. If they can actually afford the payments then, then they can stay in their houses and eat all of the money they overspent because of a bad decision, which will help spread out the hurt amongst all of the culpable parties (which is what accountability is about right?). Yes of coarse, this will slow the housing price corrections, but I think we all know now that price corrections to real market value prices are inevitable as it is the only way for the economy to regain it functioning and this crisis can end and the healing begin. It does seem that if prices crash to quickly as they have been, it creates a financial Armageddon and panic, so slowing down the correction may not be that bad of a thing as people come to terms with reality.

Of coarse this is all wishful thinking for the banks, the reality is that if you can’t pay a 6% loan, the 25% month payment reduction to a 3.5% loan isn’t going to help much unless the owner is at that threshold where those few hundred dollars are going to make the difference. So it is a great loan rate, but considering there is basically 0 downside to the banks as a foreclosure for the bank would be like giving them a –30 to -70% loan rate, it makes financial sense. Bottom line, this will not preserve irrationally priced assets, but is a way to make home owners voluntarily eat a big chunk of their losses instead of the banks. It will though contribute to the “My house is worth more than that” mentality that will slow price corrections.

[moppy]

Laker,

Wow what a story. What area is the house in?? Do tell.

So the bank forgave almost $500K in debt/loan. I believe it, I'm very curious what area though.

[Laker]

moppy ,
Sorry about the delay. Just refreshed the page and found your Q.
The area is Encino-Tarzana.
Officially it was a sale, even though the house never hit the MLS for even one day... but the bank did eat about $500,000. If I'm not mistaken, there were two loans. Something like 80/20 loan. but both from same lenders - that is why the short sale has a success.

[Jeff]

Need Advice. Wife and I refinaced with country. took money out to fix up the house. Which we did. But now owe more than it is worth. Wife and I separated. She lost her job. I kept up with the morgage for her while paying my own rent for as long as I could. Now the house is 9 months past and in foreclosure. If I walk away, I know my credit will be hurt severely. Or do you think because of the times and the economy, years from now a foreclosure will not prevent me from purchasing another house. Or, should I try and re-work the loan with countrywide. I can only do so if the lowere my rate to something i can afford on my own. I'm really torn on this.

[Martinez]

Countrywide would not work with us!

We purchased a major fixure upper in 2006 in West Covina.. We came in with 20% and have an ARM with Countrywide.... we bought at 485k and now the house is only worth about 300k - if that!! Countrywide recently DENIED our Modification Request.. We are really confused about what to do...

[HM]

We purchased a major fixure upper in 2006 in West Covina.. We came in with 20% and have an ARM with Countrywide.... we bought at 485k and now the house is only worth about 300k - if that!! Countrywide recently Denied our Modification request.. We've invested a good amount over three years... Would it be wise to walk away now??