Real Estate

Countrywide joins foe to help borrowers

The mortgage lender and a long-time adversary claim they can change foreclosure prevention with a new bailout program.

By Les Christie, staff writer

NEW YORK ( -- It's an unlikely pairing: the nation's biggest mortgage lender and one of its harshest critics. But with thousands of troubled borrowers facing foreclosure, the two adversaries put aside some of their differences and joined forces.

Countrywide Finance, announced it's partnering with the Neighborhood Assistance Corporation of America (NACA), a gadfly/community advocacy group that has been its arch enemy for years.

Even as the two trumpeted the new relationship at a feel-good-fest in Washington Wednesday, NACA's web site continued to be sprinkled with links labeled "Countrywide Victims," "Countrywide Woes" and "Expose Countrywide's Predatory Lending."

Now they've come up with a program that Bruce Marks, NACA's CEO, would like to see become the standard in foreclosure prevention.

"A lot of people have been talking about saving people's homes," he said. "Today, we have the solution that can act as a model for saving hundreds of thousands of people's homes."

The initiative overlaps with the program announced on Tuesday by Countrywide (Charts, Fortune 500) where it would arrange refinancings, restructurings and rate reductions for adjustable rate mortgage (ARM) borrowers. But the partnership with NACA would apply to all the mortgage lender's clients: prime and subprime, fixed and adjustable.

Marks claimed it changes the lending equation. "There's only one substantial solution," he said. "Looking at what the borrower can afford and reducing the rate or the balance to get to that affordable payment. We are re-underwriting these loans to where people can afford them."

The terms NACA can offer Countrywide clients seem very favorable, even compared with Countrywide's own new program targeting its subprime ARM customers, but borrowers wanting to rework loans through NACA are required to go through the organization's comprehensive, though not grueling, approval process.

They fill in an application on NACA's Web site. They then must attend a home buyer's workshop of about four hours long held at any of the organization's 33 offices in 19 states. The workshop covers mundane, but misunderstood, aspects of mortgage borrowing, such as what a settlement statement means.

After that, borrowers make an appointment for one-on-one counseling sessions of about 90 minutes to two hours. The counselors help prepare realistic budgets, looking at incomes and expenses including car payments and child-care costs.

Counselors will also spotlight excessive spending and look for other ways to save money.

Affordability is the entire focus of NACA's foreclosure-prevention procedure. It does not examine loan-to-value or even debt-to-income ratios; all it does is look at borrowers' incomes and expenses to determine how much they can pay. Then, the rate or balance of the client's loans are massaged to hit those targets.

Once the loan is restructured there's a six-month trial period. If borrowers establish themselves by making payments on time, the changes become permanent.

Strange bedfellows

At the press conference, Countrywide's Executive Managing Director, Sandor Samuels, said that the lender originally met with NACA to discuss why they were in such conflict. Neither organization was accomplishing what it wanted for imperiled borrowers.

According to Samuels, the meeting became a marathon. 48-hours later they emerged with the core of the present plan. NACA will handle the procedure, and Countrywide will pay it a fee for every successful mortgage reworking, although, Marks said, the fee is not enough to cover its expenses.

According to Steve Bailey, Countrywide's Senior Managing Director of Loan Administration, the two organizations had discovered that, in fighting foreclosures, they "go through the same process. It was about managing expenses and boiled down to what the borrower could afford."

Once they came to that understanding, it was merely a matter of ironing out details. The program has launched and 25 people were helped the first day. Several spoke at the conference.

Acworth, Ga. homeowner, Darrell Beringer, reported that he was injured on the job and couldn't work for more than a year. He fell behind on payments to the point where he did not think he could recover.

NACA and Countrywide reduced his 10 percent loan, with a payment of $1,500 a month, down to 6 percent and $900.

Another Countrywide client, Zena Collins of Maryland, said, "I'm still a little stunned. My payment was $2,200 with taxes and insurance at 11 percent. It will be $1,368 at 6 percent."

"You don't have to have an unaffordable mortgage to benefit," explained NACA's underwriting director, Pam Brooks. "You can have an affordable mortgage but, say, you lost your job temporarily. Then we could look at a repayment plan."

Some of the workouts would allow borrowers to make larger monthly payments until they catch up. For those deeper in trouble, modifications may include higher payments over the full term of the loan. Others could have their loan refinanced into a low cost, fixed-rate NACA loan, which recently carried a reasonable 5.25 percent interest rate.

Another, powerful, solution is loan restructuring. That could mean freezing an ARM interest rate at its initial level for several years.

Better for everyone

Countrywide is not offering charity. Keeping people in their homes is nearly as good for lenders as it is for borrowers; foreclosure costs average more than $50,000 per property. But there were factors working against lenders that made it difficult to rework loans.

Lenders now sell most loans to investors in secondary markets. Contracts between investors and lenders, as well as tax laws, restrict how mortgage loans can be changed.

Many of those restrictions have being eased in the wake of the mortgage meltdown. They no longer served the interests of any of the parties involved, least of all the borrowers.

This new initiative is a response to the mortgage meltdown crisis and marks a fundamental change in the way mortgage lending is conducted, according to Marks.

"For the first time," he said, "we're going to be looking at the interests of the borrowers first. Top of page