How does mortgage deal work?

Here's the deal announced Monday to help those who got certain mortgages from Countrywide Home Loans, Countrywide Financial Corp. and Full Spectrum Lending.

The settlement won't be implemented until Dec. 1 so the company can train its staff.

The deal only is for those who started paying on mortgages from Jan. 1, 2004, through Dec. 31, 2007.

Only subprime and pay-option, adjustable-rate mortgage loans are covered.

Only owner-occupied homes will be eligible.

This is what was agreed to in California:

  • Suspension of foreclosures on owner-occupied homes with subprime and pay-option, adjustable rate loans. The lender will determine whether those borrowers can afford modified loans.
  • Loan modifications, valued at up to $3.4 billion, to reduce interest payments. Certain borrowers also will have loan principals reduced.
  • Waiver of late fees of up to $33.6 million.
  • Waiver of prepayment penalties of up to $25.6 million for borrowers who receive modifications, pay off or refinance their loans.
  • Payments of up to $27.9 million to borrowers who are 120 or more days late or whose homes have been foreclosed on.
  • About $25.2 million in extra payments to borrowers who, in the future, cannot afford monthly payments under the loan modification program and lose homes to foreclosure.
  • The loan balance must be 75 percent or more of the current value of the home, and the borrower must be able to afford adjusted monthly payments under the modification.

  • The terms of the modification will vary, based on the loan:

  • Pay-option ARM loans, in which balances increase each month if a borrower makes only a minimum payment. Borrowers may be eligible to have principal reduced to 95 percent of their home's current value and may also qualify for an interest-rate reduction or conversion to an interest-only payment.
  • Subprime adjustable-rate loans, such as 2/28 loans. Borrowers may have their interest rate reduced to the initial rate. If the borrower still cannot afford it, the borrower may be eligible for further interest-rate reductions to as low as 3.5 percent.
  • Subprime fixed loans. Borrowers may be eligible for interest-rate reductions.
  • Hope for Homeowners Program. Some borrowers may be placed in loans made through this federal program.
  • Alt-A and prime loans. Borrowers who are in default but have Alt-A and prime loans may be considered for modifications.
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