Investors Hit BofA Loan Modifications

Bank of America Corp.'s decision to embark on an $8.4 billion home-loan-modification program to settle charges brought by state attorneys general against Countrywide Financial Corp. was hailed as a milestone when the deal was announced this fall. But apparently nobody talked to one group that will shoulder much of the settlement's costs: investors who hold securities backed by Countrywide mortgages. Getty Images

How to avoid foreclosures, like this one in North Las Vegas, Nev.?

Now, some of those investors are crying foul, adding to the confusion over what is becoming a central issue in efforts to resolve the wave of foreclosures that is at the root of the global financial crisis.

J.P. Morgan Chase & Co. and Citigroup Inc. recently announced foreclosure-prevention programs that aim to reduce interest rates, extend repayment schedules and, in the case of Citigroup, reduce loan amounts, to help borrowers keep their homes. But the programs have focused primarily on loans wholly owned by those companies because they feel they have more authority to rework those mortgages.

More than $2 trillion in mortgage loans were packaged into mortgage-backed securities and sold to investors by Wall Street, according to Inside Mortgage Finance. But opinions vary regarding the degree to which these mortgages can be modified.

Bank of America settled charges this fall with attorneys general from 15 states. The settlement stemmed from charges that Countrywide engaged in predatory lending practices involving borrowers who took out subprime loans and option-adjustable-rate mortgages. Under the settlement, Bank of America, which acquired Countrywide in July, agreed to modify the mortgages of as many as 400,000 borrowers by refinancing loans, lowering interest rates and reducing principal amounts. The bank neither admitted nor denied wrongdoing.