Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=100041
Story Retrieval Date: 9/1/2014 1:34:33 PM CST

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Mortgage relief by Countrywide is a small step in solving national mortgage crisis

by Ashley Johnson(2)
Oct 07, 2008


Countrywide Financial Corp.'s $8.7 billion relief plan for subprime borrowers does not go far enough as a means for averting a nationwide mortgage-default crisis.

That is the view of local real estate analysts who say a solution will require a much larger infusion of cash, along with a greater willingness by lenders to provide refinancing options for their at-risk customers.

James Shilling, an expert in housing finance at DePaul University, acknowledged the benefit of the Countrywide relief plan, part of the settlement of a deceptive marketing lawsuit between North Carolina-based Bank of America Corp., the company's new parent, and attorneys general in 11 states.

But he called Countrywide's approach, “a drop in the bucket.”

Clearing up subprime mortgage debt would require a figure of a least $1 trillion, he said, and companies such as Bank of America and Countrywide can provide more relief.

Moreover, he said, the economic environment shows that it is beneficial for all subprime lenders to modify loans in order to avoid foreclosures.

David Hanna, president of the Chicago Association of Realtors, said the settlement is a small, yet positive step. He said this sets the tone for other lenders to do the same thing, but added there’s currently little initiative for these “bill collectors” to make deals.

"It’s not right that people are forced to sell their homes because that is the only way they can get cash to pay other bills," Hanna said. But for some lenders, he said, it is better for them to cut their losses and foreclose on a non-performing asset, such as a risky loan.

Countrywide was the largest seller of subprime home loans in the Chicago area, according to a 2007 study conducted by the Chicago Reporter. With the Countrywide mortgage relief plan 11,000 Illinois at-risk borrowers, many in the Chicago area, will receive about $185 million worth of loan modifications.

Illinois Attorney General Lisa Madigan, who represented the state in the lawsuit said in a press release, “Not only will thousands of Illinois borrowers be able to stay in their homes, but our communities and local governments will benefit by reducing the devastating impact that foreclosures have on local real estate values and taxes.”

The settlement establishes the first mandatory loan modification program in the country. Natalie Bauer, a spokeswoman for Madigan, said that unlike the federal “Hope Now” program, in which lenders opt to provide mortgage refinancing to borrowers having difficulty making payments, the Countrywide program is not optional. Madigan said she hopes this program will be a model for other lenders and the federal government.

Rick Simon, spokesman for Bank of America, said the new program aims to keep 400,000 borrowers in their homes nationwide, but similar to Shilling and Hanna’s sentiment, he said it is only one small piece of the housing crisis.