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Bank Of America To Give 400,000 Borrowers A Break
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Bank Of America To Give 400,000 Borrowers A Break


From NPR News, this is Day to Day. Homeowners in trouble with their Countrywide mortgage could get a break. Bank of America, which owns Countrywide, has agreed to rewrite 400,000 mortgages that will help people keep their homes. Here to explain is Marketplace's Mitchell Hartman. And Mitchell, what are the details here? This is a result of a lawsuit brought by some states, right?

MITCHELL HARTMAN: That's right. It ends up being a settlement between 11 states' attorneys general and Bank of America, which bought Countrywide, along with, of course, its bad mortgages, and then it was getting sued by them for unfair and deceptive lending.

So, the deal is worth about 8.5 billion dollars. That's how much Bank of America could be deducting from people's mortgages as they renegotiate these predatory loans that people were given. Lots more states could join on. The big ones so far are California, Florida, and Illinois.

It's estimated that about 400,000 homeowners will be eligible for some relief, and what you'll see is Bank of America helping people by releasing their principle, reducing the interest they owe. In some cases, people may not have to pay anything but interest for a decade. Even if you do lose your home, they'll actually help pay to fix it up to sell it to someone else and relocate. The target is to get people paying around 34 percent of their income for their housing.

BRAND: So, who would be eligible for this kind of help? Would it help?

HARTMAN: Well, the plan is targeted to people who took out subprime loans. Some of these people have adjustable rates. These rates are going way up now. Some of them actually had optional adjustable rates. They got to pay whatever they wanted. And actually, they may now owe more than they bought the house for. Most of these people didn't have enough income to qualify for the homes they bought, and so a lot of them are now losing their homes, or they're in danger of foreclosure. This is going to help those people and, of course, hopefully, the overall economy.

I asked David Blitzer about this. He's the managing director at Standard and Poor's. He was looking at the market dive this morning. He wasn't feeling hopeful, but he did see a little bit of a silver lining here.

Dr. DAVID BLITZER (CEO, Standard and Poor's): People lose their homes, they suffer financially; they stop spending, and that shuts down the economy. And any steps in the direction of reducing foreclosures, which requires all concerned to give a little, should be a positive step.

HARTMAN: And Blitzer says there's two other aspects of the financial crisis that need to get solved, the bad debts held by banks and getting money flowing in the credit markets again. This at least starts to address the first problem by stopping the bleeding in the housing market.

BRAND: And the people who do get these new mortgages, will they be assured that they will be able to afford them, or is that standard not in the question?

HARTMAN: Well, you know, it's anybody's guess. We just don't know the financial situation of all 400,000 people, of course. But 34 percent, about a third of your pretax income, is pretty much right on to pay for housing according to people I talked to today at the Center for Responsible Lending, you know, and keep in mind, some of these homeowners that are in trouble, they've been paying 50 percent or even 60 percent of their income for housing, or they're supposed to, anyway, which may be why they're not paying their mortgages.

BRAND: Thanks, Mitchell. That's Mitchell Hartman of public radio's daily business show, Marketplace.

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