US mortgage giant offers plan to avert some foreclosures
Thursday, 25 October 2007
WASHINGTON, Oct 24 (AFP): America's biggest mortgage lender, Countrywide Financial, sought to throw a lifeline to tens of thousands of stretched borrowers yesterday as home foreclosures spike across the country.
US Treasury Secretary Henry Pauslon warned last week that the nation's housing downturn, which threatens wider economic growth, could see over one million homes repossessed this year.
Countrywide Financial, which has seen its finances ravaged by the market reversal, announced it was offering new terms to tens of thousands of customers to stave off the risk of foreclosure, with loans totalling around 16 billion dollars.
The home loan giant said the "unprecedented" effort was aimed at ensuring that borrowers facing the risk of foreclosure could remain in their homes even as adjustable-rate mortgages are "reset" to new market rates.
"Countrywide believes that none of our subprime borrowers that have demonstrated the ability to make payments should lose their home to foreclosure solely as a result of a rate reset," said Countrywide president and chief operating officer David Sambol.
The California-based company is vying to ride out a market storm that has already forced dozens of smaller mortgage firms out of business in the past year.
Its move comes after the government announced earlier this month that a group of 11 mortgage lenders had forged an alliance and agreed to mount an "outreach" programme in a bid to help families avoid foreclosure.
Many economists expect the Federal Reserve to cut borrowing costs next Wednesday after the central bank slashed its key short term federal funds rate by half-a-percentage point to 4.75 per cent on September 18.
Fresh housing market reports due to be released Thursday could affect a Fed decision.
New home sales, which are at their lowest level in seven years, are forecast to drop to a seasonally-adjusted pace of 775,000 in September compared with sales of 795,000 properties in August.
Sambol said Countrywide was "committed to helping its customers sustain homeownership."
The company plans to refinance and modify 16 billion dollars worth of home loans in a bid to lessen the likelihood its customers could be pitched into foreclosure as America reels from one of its worst housing slumps in decades.
Over half of the expected foreclosures this year are likely to be tied to "subprime" mortgages which were aggressively marketed to people with stretched finances during the housing boom which petered out in early 2006, according to the Treasury.
Many subprime mortgages, initially granted with low "teaser" interest rates, are due to be reset in the next year, sparking fears that even more Americans with scant savings will be unable to meet their mortgage payments.
Countrywide said it had established a special refinance unit which will offer new refinancing options to 52,000 borrowers. The effort will target customers with subprime loans who have a good payment record.
The mortgage behemoth also said it will offer to modify loans for 20,000 borrowers who could find it hard to meet mortgage payments if their interest rates increase.
It will also offer "pre-determined, pre-approved rate reductions" to around 10,000 borrowers who are struggling to pay their mortgages or have fallen behind with payments.
It said similar efforts had already succeeded in enabling over 70,000 borrowers to either refinance their home loans or stay in their properties.
Countrywide, which has seen its business strained by falling loan demand and an industry-wide liquidity crunch, announced 12,000 jobs cuts in early September.
It was forced to borrow 11.5 billion dollars from 40 banks in mid- August to underpin its stressed finances.
US Treasury Secretary Henry Pauslon warned last week that the nation's housing downturn, which threatens wider economic growth, could see over one million homes repossessed this year.
Countrywide Financial, which has seen its finances ravaged by the market reversal, announced it was offering new terms to tens of thousands of customers to stave off the risk of foreclosure, with loans totalling around 16 billion dollars.
The home loan giant said the "unprecedented" effort was aimed at ensuring that borrowers facing the risk of foreclosure could remain in their homes even as adjustable-rate mortgages are "reset" to new market rates.
"Countrywide believes that none of our subprime borrowers that have demonstrated the ability to make payments should lose their home to foreclosure solely as a result of a rate reset," said Countrywide president and chief operating officer David Sambol.
The California-based company is vying to ride out a market storm that has already forced dozens of smaller mortgage firms out of business in the past year.
Its move comes after the government announced earlier this month that a group of 11 mortgage lenders had forged an alliance and agreed to mount an "outreach" programme in a bid to help families avoid foreclosure.
Many economists expect the Federal Reserve to cut borrowing costs next Wednesday after the central bank slashed its key short term federal funds rate by half-a-percentage point to 4.75 per cent on September 18.
Fresh housing market reports due to be released Thursday could affect a Fed decision.
New home sales, which are at their lowest level in seven years, are forecast to drop to a seasonally-adjusted pace of 775,000 in September compared with sales of 795,000 properties in August.
Sambol said Countrywide was "committed to helping its customers sustain homeownership."
The company plans to refinance and modify 16 billion dollars worth of home loans in a bid to lessen the likelihood its customers could be pitched into foreclosure as America reels from one of its worst housing slumps in decades.
Over half of the expected foreclosures this year are likely to be tied to "subprime" mortgages which were aggressively marketed to people with stretched finances during the housing boom which petered out in early 2006, according to the Treasury.
Many subprime mortgages, initially granted with low "teaser" interest rates, are due to be reset in the next year, sparking fears that even more Americans with scant savings will be unable to meet their mortgage payments.
Countrywide said it had established a special refinance unit which will offer new refinancing options to 52,000 borrowers. The effort will target customers with subprime loans who have a good payment record.
The mortgage behemoth also said it will offer to modify loans for 20,000 borrowers who could find it hard to meet mortgage payments if their interest rates increase.
It will also offer "pre-determined, pre-approved rate reductions" to around 10,000 borrowers who are struggling to pay their mortgages or have fallen behind with payments.
It said similar efforts had already succeeded in enabling over 70,000 borrowers to either refinance their home loans or stay in their properties.
Countrywide, which has seen its business strained by falling loan demand and an industry-wide liquidity crunch, announced 12,000 jobs cuts in early September.
It was forced to borrow 11.5 billion dollars from 40 banks in mid- August to underpin its stressed finances.