Countrywide Financial Corp. has teamed up with the Association of Community Organizations for Reform Now (ACORN) to help subprime borrowers avoid foreclosure. All of Countrywide’s borrowers with subprime loans will be eligible for relief, according to an announcement made earlier today.
Although Countrywide completed more than 81,000 home retention workouts in 2007, the lender is still having huge problems with defaults. As of December 31, a whopping 33.64 percent of Countrywide’s subprime loans were delinquent, up from 21.22 percent a year earlier.
Last month, the struggling lender agreed to be bought by Bank of America, the second largest U.S. bank. The deal is projected to be finalized sometime in the third quarter of this year.
In the meantime, Countrywide will open up a new plan to subprime borrowers who need more manageable loans to avoid foreclosure. The lender intends to work with the advocacy group ACORN to formalize workout plans for borrowers.
What makes this plan different from some of the other previously announced initiatives is that relief will be available to all of Countrywide’s subprime borrowers, regardless of their default status. This means that workout options are available for those who are current on their mortgage payments and for those who are not.
Furthermore, borrowers do not need to have an ARM to apply for help. Subprime borrowers who have fixed rate mortgages can also seek out various workout solutions.
Some of the options Countrywide will offer to an estimated 100,000 customers include a loan modification for ARM loans that offers a five-year pre-reset rate freeze and short-term repayment plans. Some borrowers will also have the option to refinance into a prime loan.
It is hard to estimate how much of an impact (if any) Countrywide’s subprime relief plan will have. Approximately 40 percent of current subprime ARM foreclosures can be attributed to borrowers who already had at least one loan modification or repayment plan but defaulted anyway, according to the Mortgage Bankers Association.
Countrywide’s impact will also depend on how many borrowers get repayment plans and how many get loan modifications. Repayment plans are not nearly as effective because the lender takes funds that are owed and tacks them onto the back end of the loan. Although the borrower’s delinquent status is erased, the problem is not.
Repayment plans are the prevailing tactic of the HOPE NOW alliance, which includes 16 of the nation’s largest conventional and subprime mortgage servicers. During the second half of 2007, nearly 75 percent of all subprime workouts involved payment plans versus loan modifications.
Will Countrywide try to forestall the inevitable like the HOPE NOW alliance or will they make a true effort to renegotiate all of their bad loans?
During a conference call with reporters, Acorn president Maude Hurd didn’t offer any estimates about repayment plans and loan modifications, but did say that Countrywide’s new practice will help all subprime borrowers and “fill the gaps” left by other foreclosure relief initiatives.
Mary Jane Seebach, managing director of public affairs for Countrywide, said the company also has intentions to announce future programs that will help prime borrowers and borrowers with pay option loans.
