bank-of-america Bank of America Corp. has so far modified mortgages for more than 50,000 borrowers as part of its settlement of predatory lending charges brought by state attorneys general against Countrywide Financial Corp.

The move potentially saves financially troubled homeowners as much as $823 million, according to a report provided to state officials this week.


Under the terms of the settlement, which covers 390,000 borrowers, Bank of America agreed to, where possible, modify the terms of certain subprime mortgages and option adjustable-rate mortgages serviced by Countrywide, which was acquired by Bank of America last year. The report covers modifications offered or made between December and March. Forty-two states have signed on to the settlement. At the time the settlement was announced, Bank of America said reductions in principal and interest could save borrowers up to $8.4 billion.

Bank of America neither admitted nor denied wrongdoing in the case. Attorneys general in a number of states including California, Florida and Illinois had filed lawsuits taking issue with Countrywide’s marketing and sale of risky mortgage loans.

Bank of America says that the modifications done to date are saving borrowers an average of $195 per month in principal and interest payments. Ninety-three percent of the modifications have involved subprime mortgages.

The biggest savings have gone to homeowners with option ARMs, which allow borrowers to make a minimum payment that may not even cover the interest due and can lead to a rising loan balance. Savings for these borrowers average $311 per month, according to Bank of America. Some 11,000 borrowers and tenants who didn’t qualify for a loan modification have received relocation assistance valued at $22.4 million.

The agreement has drawn criticism from investors who own securities backed by Countrywide mortgages and say that Bank of America has shifted the cost of the settlement to them. Bank of America owns about 12% of the loans at issue in the settlement. An investor lawsuit that takes issue with who should pay the cost of modifications is currently pending in U.S. District Court for the Southern District of New York.

Bank of America says it extended modification offers to more than 100,000 borrowers in the first four months of the program. “We are ahead of our projected pace,” a company spokesman says. Because the program is so new, the company doesn’t know how many borrowers have remained current on their modified loans, he adds.

State officials say they are currently studying the reports provided by Bank of America. “We are still analyzing the data,” says Patrick Madigan, an assistant attorney general for the state of Iowa, who was involved in negotiating the settlement.

In some cases, borrowers’ monthly payments actually increased even as their interest rates were reduced in part because unpaid amounts were added to the loan balance. Roman Guerrero, a utility-company employee in the San Diego area, saw the monthly payment on his option ARM mortgage go up by $92 to $1,475. That’s partly because the company added nearly $6,900 Mr. Guerrero owed to his loan balance, boosting it to nearly $417,000. Also, the new payment now covers all the interest due where before Mr. Guerrero was making a minimum payment that didn’t.

The interest rate on his option ARM, meantime, fell to 4.25% from 5.625%.

“That is an affordable payment,” says Mr. Guerrero, who fell behind because his hours were cut at the same time he faced some unexpected medical bills.

Housing counselors who have reviewed modifications offered under the agreement credit the settlement for laying the groundwork for more aggressive loan modification efforts, such as the Obama administration’s housing-rescue plan. But the actual deals being offered borrowers have been mixed, they add.

Some modifications offered under the settlement are “affordable to homeowners and sustainable in the long term,” says Gabe del Rio, vice president of lending and homeownership for Community Housing Works in San Diego, which counsels borrowers facing foreclosure, “but despite the best efforts of this lawsuit, the settlement is still not providing real solutions in every case.”