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STEVE INSKEEP, Host:

And now here's an update on the bank that's been buying when others have been selling. Bank of America has grabbed the assets of failing institutions. Now the giant company has announced disappointing earnings. It cut its dividend as part of an effort to raise some capital.

ARI SHAPIRO, Host:

At the same time, Bank of America offered some promising news for homeowners. The company struck a deal with regulators, and the agreement means many people will find it easier to pay their mortgages. Here's NPR's Chris Arnold.

CHRIS ARNOLD: The move by Bank of America comes as part of a settlement with state prosecutors. They had sued the mortgage giant Countrywide Financial for predatory lending. Bank of America now owns Countrywide, and in settling the litigation, B of A has agreed to make loans more affordable for some 400,000 homeowners. Lisa Madigan is the attorney general of Illinois who brought one of the suits against Countrywide.

LISA MADIGAN: This is the first ever in the country mandatory loan modification program. So it will require Bank of America to modify loans that Countrywide borrowers got into that were very risky and unfair loans.

ARNOLD: If someone who makes $30,000 a year bought a million-dollar home, the settlement's not going to help them. But there are a lot of people in danger of foreclosure who could afford to stay in their homes if they had lower interest rates and/or a somewhat lower loan amount. So B of A has agreed to drop rates as low as 2.5 percent for some borrowers and to forgive some debt, and it will suspend foreclosures while it looks at who can qualify.

MARK E: This is a huge deal. This is a watershed moment.

ARNOLD: Mark Pearce is North Carolina's Deputy Commissioner of Banks. Now, you may not like the sound of giving people who made mistakes super-low interest rates, but those rates will adjust back to market levels in coming years. And Pearce says it's in everybody's interest to try to stop the tsunami of foreclosures. It's driving down home prices and hurting the entire economy.

PEARCE: We won't get out of the financial crisis we're in until we're able to stop the bleeding on foreclosures. Instead of addressing that problem, we allowed it to fester. And it has festered and now infected the whole of our global financial economy.

ARNOLD: Pearce says restructuring people's loans can stop that bleeding, but he says the industry before this settlement has not done these so-called loan workouts in any kind of large-scale way, and that's a huge problem.

PEARCE: Eight out of 10 families with subprime and Alt-A loans are not getting any assistance at all when they struggle to make their mortgage payment. So there are just a lot of people that are falling through the cracks.

ARNOLD: A senior manager at one of the major mortgage companies tells NPR that at that firm maybe one in a hundred people facing foreclosure are getting any kind of reasonable loan workout offer. Bank of America manages more home loans than any other company, so this deal could mark a major shift here. Terry Francisco is a Bank of America spokesman.

TERRY FRANCISCO: The scale of this is very unprecedented. And certainly the experience we've had over the past year has lent itself to this. And so therefore we can step up significantly the efforts we've had in the past to keep homeowners in their homes.

ARNOLD: One problem has been that even when lenders do a workout, it doesn't go far enough to actually make the loan affordable. So here B of A is aiming to reduce payments for borrowers to make them just a third of the borrower's income. Still, some housing advocates are skeptical.

FRANCISCO: It is a step in the right direction, but it's not as big a step as one might think.

ARNOLD: Bruce Marks heads up the Neighborhood Assistance Corporation of America. He says all the numbers sound good, but he's concerned that B of A has the option here of putting homeowners into interest-only loans in order to reduce their payments. That means homeowners could still owe more than their house is worth and won't have much incentive to keep it.

BRUCE MARKS: People will walk. The only way people will stay in a property that's worth less than what you owe is to make it a fixed-rate, fully amortizing loan, so people are invested in the property over the long term. That's true homeownership.

ARNOLD: Still, the agreement clearly goes a lot further than anything the industry has done before. Prosecutors would like it to be a model for other companies. Meanwhile, Bank of America is feeling the pain like many other banks. B of A announced earnings yesterday that were much worse than expected. Its profits were down 68 percent, in part due to the same kind of problem loans it's trying to sort out here. Chris Arnold, NPR News.

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