Countrywide to modify terms on home loans

The nation’s chief home lender, Countrywide intends to change terms on $16 billion of adjustable-rate mortgages before the end of 2008 to help borrowers steer clear of foreclosure or financial stress associated with quickly rising adjustable-rate loans.

The move follows increased criticism by various organizations cursing Countrywide of not doing enough to bail out its borrowers from risky, high-cost loans. In recent times, regulators have been urging service providers to modify the terms of mortgages to avoid foreclosures. The logic is plain simple. There is an increased recognition that it is better to earn a reasonable return than to ask for a higher return and lose to foreclosures.

Subprime mortgages are available to borrowers with bad or incomplete credit histories. According to the Mortgage Bankers Association, overdue payments on subprime mortgages rose to the highest level in five years in the second quarter.

The Calabasas, California based Countrywide said that option will be given to about 52,000 customers who hold subprime loans to refinance into prime loans backed by the U.S. government. The company also intends to ease the terms for another 30,000 customers who have missed payments when their adjustable rates reset.

Countrywide’s president and chief operating officer, David Sambol said, “Unprecedented times call for unprecedented remedies. We are determined to assist borrowers who have the willingness and wherewithal to remain in their homes, but need a little help to do it. None of our subprime borrowers that have demonstrated the ability to make payments should lose their home to foreclosure solely as a result of a rate reset."

Mr. Schumer was however skeptical in this regard. He said, "Given Countrywide’s track record, a lot of questions must be answered before they get a pat on the back. What are the fees they will be charging borrowers to refinance or restructure their loans? Who will qualify for help? And are they putting these borrowers into safe, affordable products or another unsuitable loan?"

An official spokesperson refuted any such charges and claimed that there will be no fees and prepayment penalties assessed on borrowers whose loans are modified or on delinquent borrowers.

Investors reacted negatively to Countrywide’s announcement. The stock fell 56 cents, or 3.57 percent, to $15.12 in trading Tuesday on the New York Stock Exchange.