Property Crossroads - Real Estate Info

Countrywide’s big refinance promise

by Dan on October 24th, 2007

Countrywide Financial Corp. is a giant in the mortgage-lending business. The company, in fact, originates more mortgage loans than does any other. So when Countrywide on Oct. 23 announced that it would take extra steps to help borrowers who are facing serious jumps in the interest rates on their mortgage loans, it’s a big deal.

The company announced in a press release that it was launching immediately a “home-preservation” program to reach out to borrowers who are at risk of defaulting on their mortgage loans.

Expect more lenders to offer similar programs. The federal government is encouraging – or pressuring, if you prefer – mortgage lenders to provide some relief to consumers facing sudden hikes in their interest rates. Many consumers today hold adjustable-rate or interest-only mortgage loans. These offer lower-than-average mortgage interest rates for a set period of time, then adjust. The adjustments in rates can be severe. Homeowners who had no trouble making their mortgage payments with the low rates suddenly can’t do it when the rates jump.

There’s a lot of blame to go around when this happens. The homeowners, of course, should have had the foresight to realize the troubles they’d be facing when their rates jumped. They should have either taken out a fixed-rate loan with a more realistic interest rate, purchased a less expensive home, saved money for the day when their rates did hike or refinanced out of the loan when the mortgage market was healthier.

Then there are the lenders. Most mortgage loan officers are honest, hardworking people. Some aren’t. The ones who aren’t undoubtedly led homeowners – nervous about making one of the largest investments of their lives – into loans that weren’t right for them.

Finally, don’t forget the federal government. Presidential administrations have long pushed the absurd notion that increasing the country’s homeownership rate is a top priority. Well, not everyone should own a house. For some, the “American Dream” should include a nice apartment, not the responsibility of sky-high mortgage payments.

The Countrywide program may serve as a model for other lenders whose customers are facing a surge in their interest rates. Basically, Countrywide is offering to refinance about $10 billion worth of its mortgage loans for customers who are current on their payments but whose loans’ interest rates will soon reset to higher levels. The company also promised to modify another $4 billion in loans. Finally, company officials said they will work out solutions with the borrowers of about $2.2 billion worth of loans who are late on their payments and are struggling because of the recent increase in their interest rates.

“Countrywide is committed to helping its customers sustain homeownership,” said David Sambol, president and chief operating officer of Countrywide in a press release. “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.”

This is good news for borrowers with Countrywide. It will be interesting to see how the industry’s other big players react.

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