BoA to Mitigate Foreclosed Countrywide Loans
Bank of America is promising regulators it will devote substantial resources to prevent foreclosures after it takes control of Countrywide's $1.47 trillion mortgage servicing portfolio.
BoA president Liam McGee told Federal Reserve Board officials last week his company will use the appropriate loss mitigation tools, "possibly principal reductions," to help distressed borrowers.
"And through focused effort and determination, we expect our combined company over the next two years will successfully modify or work out at least $40 billion in troubled mortgage loans, helping at least 265,000 customers remain in their homes," Mr. McGee said.
The BoA president of global consumer and small business banking testified in Los Angeles at a public hearing on its application to acquire Countrywide Financial Corp., which is based in Calabasas, Calif.
He noted that BoA and Countrywide have staffed up their servicing departments and the combined company will maintain a loss mitigation staff of 3,900 to assist distressed borrowers.
"I'd like to announce that we will maintain no less than this level for at least one year after the acquisition," Mr. McGee said. He also pledged that BoA will headquarter its mortgage business in Calabasas. BoA is based in Charlotte, N.C.
With the Fed's approval, BoA plans to complete the acquisition of CFC in the third quarter.
Countrywide released its first-quarter financial results last week and it shows the servicing portfolio has a 4.8% delinquency rate (90 days or more past due or in foreclosure) rate. This serious delinquency rate is up from 3.78% in the fourth quarter and 1.7% in the first quarter of 2007.
The serious delinquency rate on subprime loans is 21%, up from 17.3% in the fourth quarter and 7.8% in the first quarter of 2007.
The BoA executive noted that Countrywide's foreclosures are mostly subprime borrowers. "We will continue certain practices already in place, improve these practices and introduce new efforts to help borrowers avoid foreclosure," Mr. McGee said.
The first-quarter report also shows that Countrywide's holdings of payment-option adjustable-rate mortgages are rapidly deteriorating. Charge-offs on pay-option ARMs totaled $125.3 million in the first quarter, up from $35.4 million in the fourth quarter. At the same time, pay-option ARMs seriously delinquent jumped from 5.7% in the fourth quarter to 9.4% as of March 31.
BoA plans to adopt very conservative lending guidelines once the acquisition is complete, BoA consumer credit executive Bruce Hammonds said at a Federal Reserve hearing in Chicago two weeks ago. The combined company will not make subprime loans or option ARMs, he said. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/