Countrywide clients to get mortgage aid

The states of California, Illinois and Florida took the lead in the settlement, said Benjamin Diehl, a California Department of Justice attorney specializing in lending abuse. The three states had sued Countrywide and its subprime unit, Full Spectrum Lending, in June, alleging they maximized short-term profit by deceptively marketing risky loans with low starter rates to borrowers who didn't understand that their payments would one day "explode."

The program will first identify customers who have fallen behind on their mortgages by more than 60 days or are likely to do so because of loan features such as rate or payment increases, Diehl said. These customers will be contacted by Countrywide starting Dec. 1.

Various options will be considered for eligible customers, with employees handling the workouts instructed to first consider refinancing into a fixed-rate Federal Housing Administration loan, Diehl said.

The options on subprime mortgages also include keeping the initial rate for five or 10 years, having the borrowers pay interest only and reducing the interest rate to as low as 3.5%, Diehl said.

For pay-option loans, many of which now amount to more than the borrower's house is worth, the options include writing the principal down to 95% of the home's current appraised value and lowering the interest rate to 3.5%, he added.

In addition to California, Florida and Texas, the states that signed the settlement are Connecticut, Washington, Arizona, Ohio, Illinois and Iowa.

Brown said he believed most of the investors who owned the loans would accept the modifications rather than foreclosure at this point.

"It's not exactly what they wanted, but it's better than default," he said. "In this environment of people talking about us heading for a depression, I think having a predetermined fixed amount coming in will be attractive to them."

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scott.reckard@latimes.com

Times staff writers Peter Pae and Marc Lifsher contributed to this report.

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Mortgage aid

An estimated 125,000 California borrowers who are behind on their Countrywide mortgage payments and in danger of foreclosure will be eligible for loan modifications and other help under a program to be unveiled today.

The total value of the benefits in California could reach $3.5 billion. The plan calls for:

* Loan modifications, mostly through reduced interest payments, and in certain cases reductions of loan balances

* Suspension of foreclosure on delinquent loans while loan modifications are being reviewed

* Waived late fees

* Payments to delinquent borrowers or people whose homes have been foreclosed

* Waived prepayment penalties for borrowers whose loans are modified, paid off or refinanced

* Additional payments to borrowers who can't afford their monthly payments after loan modifications and who lose their homes to foreclosure in the future

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Source: California attorney general's office