Countrywide wins over critics

NEW YORK (CNNMoney.com) -- Some of Countrywide's harshest critics changed their tune this week after the mortgage lender rolled out new rescue programs.

Conrad Egan, President of the National Housing Conference, said the program "presents a strong model for how to preserve home ownership for at-risk families."

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Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling, said, "Any move that helps struggling consumers is a positive. If you're one of these people, it's significant. It can be a life-changing event."

Bruce Marks of the Neighborhood Assistance Corporation of America, which has been one of Countrywide's most vocal critics, has now actually joined forces with the company.

Marks sounds positively ecstatic about the joint-effort. "Countrywide is going to restructure loans for people with unaffordable loans to rates that people can afford to pay," Marks said.

The solution is based on NACA's "Home Save" approach that includes counseling and strict budgeting.

Countrywide (Charts, Fortune 500), with help from NACA, will examine borrowers' incomes and "back in the loan to meet the budget," said Marks. "They'll reduce the interest rate or even the balance to get there."

Marks said they've already begun trying the program. "It has already had a huge impact with homeowners having their loans restructured to as low as five percent."

Countrywide's latest efforts target adjustable rate mortgages, the so-called "toxic ARMs" that start out with low "teaser" interest rates that reset to higher, often unaffordable, rates after two or three years.

Three main groups of loan borrowers will be helped.

GROUP 1 - 52,000 borrowers get refinancing options The first group, involving 52,000 borrowers, includes those who are current with payments and have sound credit profiles. The company will reach out and make available refinancing options into prime, fixed-rate loans.

This is perhaps the least important of the Countrywide initiatives because most of the borrowers involved were in little danger. And, according to Tracy
Morgan of Home Ownership Preservation Foundation, which operates a foreclosure hotline (1-800-995-HOPE), refis are already available for these borrowers with strong payment histories.

The big advantage is that the refinancing process will be streamlined. The company claims that the fees and expenses of doing so will also be very competitive, enough so that it expects to retain the great majority of these borrowers, according to Steve Bailey, Countrywide's Senior Managing Director of Loan Administration.

For Mark Seifert, executive director of a National Training and Information Center in Cleveland, this particular part of the program is little more than PR.

"You made a garbage loan," he said. "Now you want to charge people to refinance out of it."

GROUP 2 - 20,000 borrowers get more years at low rates The second leg of the program applies to about 20,000 borrowers.

They also have not fallen behind in payments but risk doing so once their ARMs reset higher.

Countrywide will offer to restructure the loans so that the initial low, teaser rates, which the borrowers have already demonstrated an ability to pay, will be extended for an additional five years.

That should give the borrowers needed breathing room, during which their income may increase or home prices may recover.

GROUP 3 - 10,000 borrowers get rate reductions The third group of borrowers targeted, numbering about 10,000, will be those who have already fallen behind in payments.

They'll be offered pre-approved, pre-determined rate reductions that should be low enough so that they'll be able to retain home ownership.

The only borrowers not being offered aid are ones whom the company has deemed very poor risks over and above the impact of rate resets.

For example, they might be facing a job loss or their debt payments may simply be too high. Countrywide may decide they are unlikely to keep their homes no matter what reasonable mortgage modification they receive.

According to Mike Larson, a real estate analyst for the Weiss Group, who characterizes Countrywide's programs as "baby steps," lenders are creating these initiatives because Washington is "twisting their arms." You're going to see these announcements all the time," he said, "because regulators are breathing down their necks."

Michael Shea, housing director of the Association of Community Organizations for Reform Now (ACORN), also remained skeptical. "It raises more questions than it answers," he said. "The devil is in the details."

Shea pointed out, on the affordability equation, for example, the question is what expenses will Countrywide include when figuring out how many dollars are left in the budget for mortgage payments? Will it take into account car loans? If they don't, that may be fine for someone living in Boston or New York, but not places like California, where many of their subprime borrowers live.

In addition, Shea wondered if Countrywide can handle the volume of loans involved, especially given the degree of scrutiny the company will have to put borrowers through.

"It's ironic," said Shea. "After giving out loans like candy, now they want to know where every last dollar of income came from. When you have millions of delinquent borrowers you don't have time to do this."