Bank of America to pledge mortgage aid

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By E. Scott Reckard

In a hearing about its plan to buy Countrywide, the company will promise to help 265,000 troubled borrowers keep their homes and take other steps.

Pushing to fast-track its takeover of wounded home-loan goliath Countrywide Financial Corp., Bank of America Corp. will promise today to help 265,000 troubled borrowers keep their homes over the next two years by refinancing or modifying at least $40 billion in mortgages.

Bank of America also plans to double its community development lending, which focuses on affordable housing, small businesses and people in low-income and minority neighborhoods, to $1.5 trillion over 10 years, said Liam E. McGee, the bank's top consumer and small-business executive. In addition, the Charlotte, N.C.-based bank will donate $2 billion to charity over the coming decade, up 33% from its current level.

McGee is to unveil the commitments today while testifying at a Federal Reserve hearing on the bank's plan to buy Countrywide, the nation's largest mortgage lender, for $4 billion in stock. The combination would give Bank of America 25% of the U.S. mortgage market. Regulatory approval of the deal is expected, and the bank hopes to win speedy approval and complete the acquisition in July.

Providing a preview of his testimony in an interview, McGee said he was optimistic that the company's "responsible and principled approach" would avoid both the pitfalls of old-line banking -- doing business only in supposedly safer, affluent areas -- and the aggressive lending that toppled Countrywide and hundreds of smaller mortgage firms, producing a monumental wave of foreclosures.

"It's very much our intent to make mortgages available to the underserved," McGee said. "But we're going to make sure that people who get loans from us can repay them and stay in their homes."

Doing more to help mortgage holders will be the top demand of fair-lending advocates who are expected to crowd the two-day hearing at the Federal Reserve building in downtown Los Angeles. The Fed's tentative witness list contained 130 names.

Prominent California advocacy groups such as the Berkeley-based Greenlining Institute said they would support speedy approval of the deal if the bank demonstrated it would lend more responsibly and do a better job of working with troubled borrowers than Countrywide had done.

"BofA could totally dominate the home origination market if this acquisition is approved," George Dean, president of the Greater Phoenix Urban League, said in a statement released by Greenlining. "It therefore has a very special obligation."

Witnesses sponsored by the San Francisco-based California Reinvestment Coalition include four borrowers complaining of frustrating delays and broken promises made by Countrywide's bureaucracy as they struggled to make payments or fell into foreclosure proceedings. One cancer patient was promised a loan modification, but a mix-up occurred on the lender's end and the home was foreclosed on anyway, coalition spokeswoman Victoria Leon Guerrero said.

"When Bank of America takes over, it will be an even bigger operation," she said. "We want assurances they will do a better job" of handling troubled loans.

McGee said he had heard about the complaints and pledged that Bank of America would improve the level of customer service so that neither the "reality [nor] the perception" of such difficulties would continue. He said the two companies had doubled their staffs dealing with troubled borrowers to 3,900 employees over the last year, a level he said would be maintained for at least another year.

He also noted that Countrywide, unlike many lenders, already was going beyond merely sending letters and making phone calls when borrowers run into trouble. After three missed payments on a sub-prime loan, Countrywide sends an employee to knock on the door of the borrower's home to try to talk over possible solutions, McGee said.

Once foreclosure proceedings begin, McGee said, Bank of America will stop adding late fees to the balance owed, and he said the bank would, when legally permitted, waive fees imposed by some mortgages when borrowers pay loans off early.

At a Fed hearing in Chicago last week, the bank said it would limit the use of prepayment penalties after the Countrywide takeover, greatly restrict loans on which borrowers don't document their incomes, and altogether eliminate sub-prime loans and mortgages that allow borrowers to pay less than the monthly interest, causing their loan balances to rise.

Helping 265,000 borrowers retain their homes over the coming two years through refinancings or by reworking loan terms would keep Bank of America at about the pace of workouts that Countrywide says it achieved early this year. The advocacy groups say they are concerned because more than half a million Countrywide borrowers face foreclosure, but McGee said many of those are speculators who don't deserve and won't receive help.

Addressing another demand by the advocacy groups, McGee said the bank would be willing in some circumstances to write down the principal on mortgages to keep borrowers from becoming discouraged and defaulting because their loans are so far "underwater."

Countrywide reported $1.6 billion in losses during the second half of 2007. Bank of America agreed in January to buy the Calabasas-based lender, and Bank of America Chief Executive Ken Lewis has continued to defend the acquisition as strategically wise despite complaints by some stockholders that the risks are too great.

Bank of America quit writing sub-prime loans -- those to risky borrowers whose credit histories or heavy debt loads preclude them getting traditional bank loans -- early this decade. But it was burned badly in the related business of creating debt securities out of risky mortgages. As of April 1, the bank had recorded $8.2 billion in write-downs on sub-prime-related holdings and loan losses, the fourth-largest total of any U.S. banking firm, according to a tally by Bloomberg News.

Countrywide became the largest mortgage lender by striving to dominate all segments of the market, including sub-prime and "pay-option" loans, which allow borrowers to pay so little that their mortgage balance rises. Most foreclosures have been on sub-prime loans, but delinquencies on pay-option loans -- which are written mainly to borrowers with prime credit scores -- have risen dramatically.