Colorado Attorney General John Suthers announced Monday that Colorado has entered into a settlement with Countrywide Financial Corporation, and several of its affiliated entities, over the marketing of subprime and other high-risk mortgage products in Colorado. As part of the agreement, Countrywide will make nearly $6 million available to eligible Colorado borrowers and to the state, including $500,000 for the Colorado Department of Local Affairs Division of Housing to support the continued operation and expansion of the Colorado Foreclosure Hotline.
The settlement was approved by Denver District Court Judge Herbert L. Stern III on Feb. 3. In its complaint supporting the settlement agreement, the state alleged that Countrywide engaged in a series of deceptive trade practices by placing borrowers in high-cost loans that carried an even higher risk of delinquency and default. The complaint alleged that Countrywide used loose underwriting standards to place borrowers in loans that quickly became unaffordable as introductory rates expired and borrowers’ monthly payments dramatically increased. The state alleged that these lending practices have caused delinquencies, foreclosures, and ultimately, lower home values in Colorado.
Loans modified for eligible borrowers
Under the settlement agreement, Countrywide will help its borrowers who are in default or facing foreclosure save their homes through fast-track loan modification on subprime or option-ARM loans, resulting in reduced mortgage payments. The program offers a series of loan modifications, including lowering the interest rate as low as 3.5 percent for five years to make house payments more affordable. Alternatively, Countrywide can make loans interest-only for up to ten years.
Countrywide has already begun contacting eligible borrowers in Colorado to determine if they qualify for a loan modification under the settlement. The settlement agreement requires Countrywide to complete the modification for a borrower within 60 days of that borrower providing income information. During this time, any foreclosure proceedings are suspended. In addition, Countrywide will write-off late fees and waive prepayment penalties on modified loans.
It is estimated that approximately 6,800 Colorado homeowners stand to benefit from the loan modification program. Waivers of certain late fees and prepayment penalties are expected to result in a combined savings of more than $2.1 million. Borrowers that do not qualify for a loan modification under the settlement, or who previously went into default and lost their homes to foreclosure after only a few payments, may be eligible to receive compensation under the settlement. A fund of $1.2 million has been set up for relocation payments to eligible Colorado borrowers. A separate fund of approximately $4.4 million will be used to compensate approximately 1,180 Colorado homeowners who could only make six or fewer payments before they could no longer afford their loans.
Foreclosure Hotline assistance
Under the settlement with Countrywide, $500,000 will be paid directly to the Colorado Division of Housing to support the Colorado Foreclosure Hotline. Evidence shows as many as one-half of homeowners who are in default or facing foreclosure never seek assistance from lenders or nonprofit, HUD-approved housing counselors. In contrast, nearly 80 percent of borrowers who contact the Foreclosure Hotline are able to save their homes from foreclosure.
The $500,000 payment will help expand the Foreclosure Hotline’s outreach efforts, in particular, to minority communities that historically have been reluctant to seek assistance. Homeowners who are having trouble paying their mortgage are encouraged to call the Hotline at (877) 601-4673. The Hotline is staffed with nonprofit, HUD-approved housing counselors who can help explain loan options. The hotline takes calls free of charge.
The settlement is consistent with other loan modification programs that have been rolled out by public and private mortgage holders, including FDIC, JP Morgan Chase, CitiGroup, Fannie Mae and Freddie Mac. The Attorney General’s Office has been participating in the State Foreclosure Prevention Working Group since it was formed in 2007. The group has been working cooperatively with the top subprime mortgage companies in an effort to create loan modification programs that make economic sense for both the borrower and lender.