BofA to stop offering risky mortgages
Bank of America Corp. said Tuesday that it planned to stop offering some riskier mortgage loans after it finishes buying Countrywide Financial Corp., the largest U.S. mortgage lender.
The changes affect home loans once common at Countrywide, which agreed in January to a $4-billion takeover by the nation’s second-largest bank after borrower defaults soared and credit markets tightened.
Consumer groups, borrowers, lawyers and politicians have said lending standards at Calabasas-based Countrywide helped fuel the nation’s five-year housing bubble and was a major factor in the current downturn.
Bank of America said the combined businesses will not offer “option” adjustable-rate mortgages, which let borrowers pay less than the interest due. It said they will also not offer sub-prime mortgages, which go to borrowers with poor credit. Bank of America has not offered sub-prime mortgages since 2001.
In addition, Bank of America plans to “significantly curtail” other nontraditional mortgages, including those that don’t require borrowers to fully document income or assets.
The Charlotte, N.C.-based bank said it also plans to limit prepayment penalties on interest-only and hybrid adjustable-rate mortgages. The latter carry fixed rates for a period of time, typically five years, and then adjust.
“We recognize this tightening, by definition, restricts the availability of credit to some borrowers,” said Bruce Hammonds, Bank of America’s global consumer credit executive. “However, this will help ensure that those who get loans can afford to repay them.”
Bank of America will continue to offer loans eligible for purchase by mortgage financiers such as Fannie Mae and Freddie Mac, as well as adjustable-rate mortgages, and mortgages with a 10-year minimum interest-only period.
In 2007, Bank of America and Countrywide together made about $598 billion, or one-fourth, of all U.S. mortgage loans, according to the newsletter Inside Mortgage Finance.
On Tuesday, the Federal Reserve was in Chicago holding the first of three public hearings on the planned merger.
The Fed has scheduled hearings Monday and Tuesday in Los Angeles.
