BofA to Tighten Mortgage Standards

Bank of America(BAC Quote) on Tuesday said it would tighten its mortgage lending standards after it completes its merger with Countrywide Financial(CFC Quote) later this year.

The Charlotte, N.C.-based bank, which on Monday reported $1.9 billion in writedowns related to the U.S. mortgage market, said it would discontinue some nontraditional mortgages such as option-adjustable rate mortgages and "significantly curtail" others, including some low-documentation, Alt-A loans. BofA already does not originate subprime loans.

Other loans, such as those conforming to government-sponsored entities Fannie Mae(FNM Quote) and Freddie Mac(FRE Quote), and fixed-period ARMs that provide low initial rates but fixed payments and protections against steep payment increases, will continue to be offered.

"We recognize this tightening, by definition, restricts the availability of credit to some borrowers," BofA's Global Consumer Credit Executive Bruce Hammonds said in a company statement. "However, this will help ensure that those who get loans can afford to repay them."

BofA also plans to introduce new protections for borrowers after closing the Countrywide deal, including limits on prepayment penalties and provisions to make nontraditional loans such as interest-only and hybrid ARMs, affordable in the long term.

The changes come as BofA and Countrywide work with the federal government and other lenders to mitigate the impact of rising foreclosures on the U.S. economy. To that end, Bank of America Charitable Foundation and Countrywide also said on Tuesday they plan to provide $35 million in grants and low-cost loans to aid local and national nonprofits prevent foreclosures and to purchase vacant lots to help stabilize neighborhoods.

Through Project Lifeline, organized by the Treasury Department, BofA, Countrywide, Citigroup(C Quote), JPMorgan Chase(JPM Quote), Wells Fargo(WFC Quote) and Washington Mutual(WM Quote), the lenders said they would reach out to homeowners more than 90 days delinquent on their mortgages to work out solutions.