Bank of America (BofA) and the attorneys general of 11 states announced the creation of a home retention program that will systematically modify troubled mortgages written by Countrywide Financial Corporation. BofA agreed that nearly 400,000 Countrywide Financial Corporation customers nationwide will be granted up to $8.4 billion in interest rate and principal reductions. BofA acquired Countrywide on July 1, 2008.

The agreement represents the largest predatory lending settlement in history and the first mandatory loan modification program in the country. Earlier this year, the 11 states participating in the settlement alleged that Countrywide had engaged in unfair and deceptive conduct by marketing and originating unnecessarily risky and costly mortgage loans that the borrowers could not afford. BofA said other states will be given an opportunity to participate.

The modification program covers subprime and pay-option adjustable-rate mortgage loans in which the borrower’s first payment was due between January 1, 2004 and December 31, 2007. The program will be available for loans in default that are secured by owner-occupied property and serviced by Countrywide or its affiliate. In addition, the borrower’s loan balance must be 75% or more of the current value of the home, and the borrower must be able to afford adjusted monthly payments under the terms of the modification.

Frank Wants Same from Other Lenders

A few days after announcement of the settlement, House Financial Services Committee Chairman Barney Frank (D-Mass.) urged the country’s largest mortgage lenders to implement “immediate mass modifications based on, or stronger than, the measures Bank of America/ Countrywide has undertaken.” Frank called upon Citigroup, JPMorgan Chase, and Wells Fargo to report to his committee by Oct. 17.

“Unfortunately our warnings and urgent appeals have not been sufficiently heeded, thus deepening the effects of the financial crisis on homeowners, communities, and the economy as a whole,” Frank said.