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Borrowers get a lifeline

Attendees wait in line outside of the Foreclosure prevention workshop held at the Modesto Center Plaza in March.
Attendees wait in line outside of the Foreclosure prevention workshop held at the Modesto Center Plaza in March. Modesto Bee

There may be a way out of trouble, after all, for thousands of Northern San Joaquin Valley borrowers struggling with risky housing-boom mortgages from Countrywide Financial Corp.

A legal settlement announced Monday by Countrywide's new parent company, Bank of America, and California Attorney General Jerry Brown, promises an $8.4 billion rescue nationwide to save an estimated 400,000 homes from foreclosure.

That includes Countrywide cutting $3.5 billion in loan obligations to save about 125,000 homes in California.

Bank of America agreed to freeze and cut interest rates, suspend foreclosures and waive late fees for live-in homeowners. Some who lost homes are eligible for aid. The firm said it will begin reaching out Dec. 1 to borrowers deemed eligible.

It wasn't clear how many borrowers in the valley might get relief, but it's likely to be thousands.

More than 35,900 mortgages and home-equity loans -- worth more than $7.4 billion -- were made by Countrywide from January 2004 to December 2007 in Stanislaus, San Joaquin and Merced counties, according to statistics from MDA DataQuick, a real estate research firm.

That's the period covered by the settlement, but only borrowers who received subprime loans or payment option adjustable-rate mortgages will be helped.

"This is great news for borrowers. It shows positive movement by Bank of America on behalf of Countrywide borrowers," said Martha Lucey, president of ByDesign Financial Solutions, which provides free foreclosure prevention and housing counseling in Stanislaus, San Joaquin and Merced counties.

Bank of America bought Countrywide -- once the nation's largest mortgage lender -- in July after the company imploded under the weight of its defaulting loan portfolio.

Brown described Monday's settlement as "the biggest mandatory loan reduction in American history."

"With this settlement, homeowners will receive direct relief from the catastrophic damage caused by Countrywide," Brown said. "Countrywide's lending practices turned the American dream into a nightmare for tens of thousands of families by putting them into loans they couldn't understand and ultimately couldn't afford."

Even though it often was independent mortgage brokers -- not Countrywide employees -- who filled in the loan documents that got homeowners into trouble, Countrywide ultimately was responsible, according to Eduardo Morales, a housing counselor for El Concilio in Modesto.

"Countrywide's underwriters approved those loans," Morales said. He's convinced Countrywide knew many subprime and option-ARM mortgage borrowers could not afford those loans.

Morales said borrowers -- including many Latinos with limited-English skills -- often were talked into accepting bad loans by "loan officers who told them: Don't worry about it because you'll refinance in a year."

Instead, the housing market shifted and families were trapped in mortgages they couldn't afford or refinance. Once values plummeted, borrowers owed more than their homes were worth, so they ended up in foreclosure.

Allegations of deception, steering and pressure tactics were key provisions of lawsuits filed by several states against Countrywide in June.

Economists think Monday's settlement will help ease the housing crisis.

"This is strongly a positive step to start stabilizing the home market," said Stephen Levy, director of the Center for the Continuing Study of the California Economy. "This is probably bigger than the (Wall Street) rescue plan."

Ed Parcaut of Source One Loans in Modesto hopes the settlement will persuade more lenders to help borrowers keep their homes. Parcaut is one of the leaders in No Homeowner Left Behind, a group that has held about a dozen foreclosure prevention workshops in the valley.

But the Countrywide settlement is limited to helping those who took out only two kinds of loans:

Payment option loans, often called option ARMs. Those are mortgages that grow larger as most people make a minimum payment. Between their third and fifth years, their monthly payments can double or triple.

Subprime loans. Those are high-cost loans of last resort for buyers who had a history of not paying off loans. They, too, are prone to sizable jumps in monthly payments.

Both loans contributed to more than 22,000 foreclosures in Stanislaus, San Joaquin and Merced counties in the past 12 months.

"For owners with subprime and option ARM loans, this could really make a difference," said Lucey.

The deal offers no help, however, for those with traditional loans, like fixed-rate mortgages or regular ARMs, said Peter Covets, branch manager for Guild Mortgage Co. in Modesto.

Covets said those who made conservative decisions about what they borrowed may see this deal as "a reward for irresponsible behavior."

Bee staff writer J.N. Sbranti can be reached at jnsbranti@modbee.com or 578-2196.

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