BofA to tighten mortgage rules after Countrywide purchase

Bank of America Corp. says it will implement new lending guidelines in its consumer mortgage business after it acquires Countrywide Financial Corp.

The deal is slated to close in the third quarter.

BofA says it will continue its policy of not originating subprime mortgages. Following the merger, the combined mortgage operation will discontinue nontraditional mortgages for which monthly payments may not cover all interest and will curtail low-documentation loans.

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BofA also will limit prepayment penalties as well as interest-only and hybrid adjustable-rate mortgages.

"We think it's important to clearly explain the changes in mortgage lending practices once we operate as a combined company," says Bruce Hammonds, global consumer credit executive at BofA. "We recognize this tightening, by definition, restricts the availability of credit to some borrowers. However, this will help ensure that those who get loans can afford to repay them."

Additionally, the Bank of America Charitable Foundation and Countrywide plan to provide $35 million in grants and low-cost loans to assist local and national nonprofits engaged in foreclosure prevention, and to purchase vacant single-family homes for neighborhood stabilization.

Charlotte, N.C.-based BofA (NYSE:BAC)announced in early Januaryit would buy Countrywide (NYSE:CFC) in an all-stock transaction worth about $4 billion.

Later that month, Calabasas-based Countrywide said 33.64 percent of its subprime mortgages were delinquent at the end of 2007. That was up from 29.08 percent in September and 21.22 percent in December 2006.

In August, BofA invested $2 billion in Countrywide, the country's largest mortgage lender. BofA's investment came in the form of a nonvoting convertible preferred security yielding 7.25 percent annually. The security can be converted into 16 percent of Countrywide's common stock.

At that time, Countrywide's stock price was falling amid concerns about its exposure to the subprime-mortgage market. Since then, that market has deteriorated, and Countrywidehas fought off rumors of bankruptcy.