- The Washington Times - Wednesday, April 23, 2008

CHARLOTTE, N.C. (AP) Bank of America Corp. said yesterday it will tighten its mortgage lending standards after it completes its acquisition of Countrywide Financial Corp. later this year, and it will stop making one type of loan widely blamed for foreclosures.

The Charlotte-based bank’s plans came as part of testimony before the Federal Reserve Bank of Chicago, which held a meeting about the company’s $4 billion deal to acquire the California lender.

Bank of America said it will discontinue so-called option adjustable-rate mortgages, or loans that allow customers to make payments for less than the monthly interest due. Critics say such loans carry higher rates and can cause borrowers’ balances to increase.

The bank said it will also greatly reduce offerings of other nontraditional loans, such as those that allow for little documentation.

Bank of America plans to continue to offer traditional mortgages that fit government-sponsored enterprise guidelines, including FHA and VA loans. It also will offer interest-only fixed-rate and adjustable-rate mortgages that have long reset periods to lessen the likelihood of short-term payment spikes.

It will not originate subprime mortgages, a practice Bank of America dropped in 2001 when Ken Lewis took over as chief executive. The bank called it a business that had “become unattractive from a risk-reward standpoint.”

Countrywide is among the dozens of mortgage lenders that have faced an increase in mortgage defaults and foreclosures, especially in subprime loans — those made to borrowers with weak credit. Its lending practices have been questioned, and the company faces numerous investigations and lawsuits related to them.

The acquisition is expected to close in the third quarter.

“We think it’s important to clearly explain the changes in mortgage lending practices once we operate as a combined company,” said Bruce Hammonds, Bank of America’s consumer credit executive. “We recognize this tightening, by definition, restricts the availability of credit to some borrowers.”

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