Real Estate

Countrywide expands mortgage workout scope

Under a broader plan, subprime borrowers with fixed rate loans will be eligible for restructured loans.

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NEW YORK ( -- Countrywide Financial said Monday it will expand programs to help borrowers manage their mortgage payments regardless of the type of subprime loan they have or whether they have already fallen behind on payments.

Months ago, Countrywide launched a program to help subprime adjustable rate mortgage (ARM) borrowers. The latest initiative, brokered with the Association of Community Organizations for Reform Now, or ACORN, adds borrowers of subprime, fixed-rate loans.

"Countrywide is eager to help all borrowers facing difficulties, adjustable rate and fixed rate alike," said Michael Gross, Countrywide's managing director for loan administration in a conference call.

Countrywide has not specified how many more borrowers the plan would help, but according to data from trade group, the Mortgage Bankers Association (MBS), fixed-rate borrowers account for nearly half of all subprime loans in the nation.

The delinquency rate for subprime, fixed rate loans is high at about 12.2 percent, according to MBA, but still considerably below the 18.8 percent delinquency rate recorded by subprime ARMs.

About 735,000 of the 9 million loans serviced by Countrywide fall into the subprime category, according to Gross.

The biggest change appears to be the work-outs that may be offered to subprime, fixed-rate borrowers, who had been mostly left out of previous foreclosure prevention initiatives. The company said it will lower interest rates for some troubled, fixed-rate borrowers.

Previous foreclosure prevention efforts focused on ARM borrowers at risk because they faced resetting interest rates. These loans often feature two or three years of low fixed rates that reset several percentage points higher after that.

ARM borrowers are not left out of this plan. Those with subprime hybrid adjustable-rate mortgages could be offered the option of refinancing into a lower prime rate loan, or have their initial interest rate frozen for five years.

"[The program] is a good thing," said John Taylor, chief executive of the National Community Reinvestment Coalition. "It could force the head of Treasury [Henry Paulson] to expand the Hope Now initiative."

Hope Now is a government-led alliance of lenders, servicers and investors that was formed to help troubled borrowers. According to Taylor, the group, while useful, works too much on a case-by-case basis. The situation calls for a more extreme, broader structured effort which could efficiently address much of the huge volume of at-risk loans coming up.

Full details of the initiative, the result of a pact with a national community advocacy group, were disclosed Monday. Initial plans to publicize the deal were postponed last month after Countrywide agreed to be acquired by Bank of America for $4.1 billion in stock.

Countrywide, the nation's largest mortgage lender and home loan servicer, has sought to address the growing number of defaults on its books by modifying loan terms, working out long-term repayment plans and other actions. The company said last month it helped more than 81,000 borrowers keep their mortgage payments manageable in 2007.

The kinds of work-outs being offered by the company have changed considerable over the past eight or nine months. Previously, Countrywide was targeted by foreclosure prevention advocates as one of the mortgage lenders least responsive to the problems faced by borrowers.

The bulk of the loan reworks the company offered were mere repayment plans or forbearance agreements, in which borrowers were granted more time to make up missed payments or arrears were added to later payments. That contrasts with true mortgage modification in which the terms of the loan are changed and interest rates, balances or both are lowered to reduce monthly bills.

"The vast majority of retention workout now being done involve some type of modification," said Gross.

Gross backed up that contention with statistics. In October, he claimed the company modified 9,047 loans; in November, 12,565 and in December, 10,000. They represented more than 80 percent of all mortgages that Countrywide put through a work-out during those months, he said.

Some 6.96% of the 9 million loans in Countrywide's servicing portfolio were delinquent as of Dec. 31, up from 5.02% in December 2006. About 1.04% of the mortgage loans, or 93,961, were pending foreclosure, up from 0.65%.

The company also was among the lenders who agreed to a Bush administration-proposed agreement to freeze rates on some subprime mortgages for five years.

Despite the efforts to modify loans for some borrowers, some consumer groups argue the mortgage industry hasn't done enough, noting many borrowers continue to fall behind on payments.

Maude Hurd, national president of ACORN, however, praised Countrywide's latest initiative.

"We hope others in the mortgage servicing industry will adopt similar practices," said Hurd. "No subprime borrowers with the ability and willingness to make payments should lose their homes."

--From Associated Press and staff reports To top of page

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