Loan Modifications

Bank of America Corp. is feeling billions of dollars in fresh pain from its 2008 acquisition of home-loan specialist Countrywide Financial. Implicitly acknowledging that it overpaid significantly when it bought the Calabasas lender for $4.2 billion in stock, Bank of America said Monday that it was slicing $2 billion off the value of that investment on its books. The Charlotte, N.C., bank also disclosed that it agreed to pay Fannie Mae and Freddie Mac a total of $2.8 billion to settle claims of misrepresentations on billions of dollars in loans that went sour after Fannie and Freddie bought them from Countrywide, which was once the No. 1 home lender.

Wells Fargo & Co. reached an agreement with the state of California to make mortgage modifications valued at as much as $2.4 billion on risky mortgages that let borrowers decide how much they would pay each month. The bank also will pay $32 million to more than 12,000 California borrowers who had such loans and lost their homes to foreclosure, according to the accord, announced Monday with Atty. Gen. Jerry Brown's office. The $32 million works out to an average of about $2,650 for each former homeowner.

Echoing recurring complaints about mortgage lenders, authorities in Arizona and Nevada have filed civil fraud lawsuits accusing Bank of America Corp. of misleading troubled borrowers into expecting loan modifications that never came. The desert states, among the hardest hit by foreclosures, are also part of a 50-state coalition that is negotiating with major banks over a host of foreclosure-related complaints. But while that joint effort began only recently under the leadership of Iowa Atty.

Bank of America Corp. told 2,500 mortgage origination staffers this week that they would be reassigned to loan modification duty, two weeks after the bank promised Congress to provide better service to distressed borrowers who sought help in avoiding foreclosure. The effort attempts to address a persistent complaint of borrowers caught in the 3-year-old foreclosure crisis: being bounced from bank employee to employee as they tried to work out a way to stay in their homes, often being told different things about their case in each conversation along the way. Bank of America, the giant Charlotte, N.C., lender, became the largest servicer of home loans in 2008, when it acquired Calabasas-based Countrywide Financial Corp.

Last year, Noel Sandoval, an accountant in San Mateo, Calif., who is disabled from epilepsy, asked Bank of America to ease the terms of his $369,000 mortgage under a federal program designed to help homeowners in distress. After almost 12 months of back and forth, the bank told him no. Its explanation: The mortgage was owned by an investor who wouldn't permit any modifications. It turned out, though, that the bank wasn't telling the truth ? something Sandoval's legal services lawyer discovered only after she finally obtained a copy of the mortgage servicing agreement.

When Meghan Faux, a lawyer and foreclosure counselor in New York, calls JPMorgan Chase & Co. to help a homeowner modify a mortgage, she expects the runaround from representatives unwilling or unable to answer basic questions about the borrower's case. She's more hopeful calling Wells Fargo & Co., which like Chase is one of the three largest mortgage servicers, along with Bank of America Corp. "There's still a long way to go there," Faux said of Wells Fargo. "But they are at least responsive to our concerns.

Adding to worries about the economy's direction, the number of newly delinquent home loans has risen for two straight quarters in what could foreshadow another surge in unemployment-related foreclosures. The consequences of the increase in fresh delinquencies are uncertain. But the rise presents a troubling counterpoint to positive trends in severely delinquent loans and foreclosures, which, although still at very high levels, have begun to decline, the Mortgage Bankers Assn. said Thursday.

Despite the vital interest that both lenders and borrowers have in avoiding money-losing foreclosures, the number of failing mortgages remains stubbornly high. Part of the problem is borrowers who've sunk too deeply into debt — they bought homes they simply couldn't afford, or their income plummeted during the recession. But another part is the inability of some loan servicers to deal with the volume of defaults that ensued after the housing bubble burst and the economy collapsed.

Banks foreclosed on almost 200,000 homes in California last year, and this year's toll is expected to be even higher. State lawmakers have tried to encourage banks to do more loan modifications that help both sides, keeping borrowers in their homes while cutting lenders' losses. Yet homeowner advocates say a serious problem remains. Overwhelmed and disorganized, lenders continue to foreclose on borrowers who are in the process of negotiating new loan terms. At a time when the market is flooded with repossessed properties, that's just inexcusable.

The Obama administration said Monday that its program to prevent foreclosures gained ground in April as more homeowners won permanently reduced monthly payments. But in a new sign of trouble, nearly a quarter of temporary reductions offered since last year have been canceled. The number of permanently modified mortgages jumped about 30% in April. The 295,348 permanent modifications amount to about a quarter of the 1.2 million trial modifications started under the program, which began last spring.