Illinois AG says mortgage lawsuit deal is model

A loan modification program that's part of an $8.7 billion national settlement over deceptive mortgage practices will help tens of thousands of borrowers stay in their homes and could be a national model, Illinois Attorney General Lisa Madigan said Monday.

Madigan's office and California officials negotiated the settlement with Bank of America to settle a predatory lending lawsuit against Countrywide Financial, which the Charlotte, N.C.-based bank acquired over the summer.

The settlement applies to people who got mortgages through Countrywide.

"This is a model that other lenders and servicers, as well as the U.S. Treasury should look at ... to make it mandatory on others," Madigan said at a Chicago press conference.

The settlement lets homeowners with the riskiest loans modify their terms, driving down interest rates - in some cases to possibly as low as 2.5 percent for five years, according to Madigan's office.

Borrowers might also have their principal cut or qualify to pay nothing but interest for a decade. Even people who can't afford to keep their homes with such changes will be able to get help moving to a new home.

Besides Illinois and California, at least nine other states have joined the settlement. For struggling Illinois homeowners it will mean about $185 million in loan modifications, Madigan said.

The other states are: Arizona, Connecticut, Florida, Iowa, Michigan, North Carolina, Ohio, Texas and Washington.

If all 50 states joined, the settlement could provide $8.7 billion in relief to 400,000 borrowers, said Deborah Hagan, chief of Madigan's Consumer Protection Division.

Bank of America will launch the new mortgage aid program in December, said Barbara Desoer, president of Bank of America's mortgage, home equity and insurance services. In a statement over the weekend, she called it "a comprehensive program that provides more solutions than ever before to assist troubled borrowers and put them back on the path to sustained home ownership."

The mortgage aid includes revising customers' payments so they don't exceed 34 percent of income. Other options include reducing interest rates and adjusting principal so borrowers don't wind up actually losing equity under some payment plans.

Countrywide will not charge loan modification fees and will waive prepayment penalties.

The settlement includes refinancing as many as 9,700 mortgages in Michigan, Attorney General Mike Cox said.

"Through our negotiations, we have provided a helping hand to thousands of Michigan families who are struggling with the foreclosure crisis," Cox said in a statement

Illinois' Madigan said the settlement helps not only homeowners but also entire communities. Foreclosures drag down home values, thereby decreasing the property tax base, which means less money for cities and towns to pay for necessities like police, education and infrastructure needs, she said.

"If we can work to keep people in their homes, and if we can do that in a way that does not further hurt taxpayers, we will be able to help the overall economy," Madigan said.