The settlement means that Countrywide will make nearly $6 million available to eligible Colorado borrowers and pay $500,000 to support the state's foreclosure hot line, Colorado Attorney General John Suthers said.

The state accused Countrywide of participating in deceptive lending practices that caused delinquencies, foreclosures, and ultimately, lower home values in Colorado.

Countrywide engaged placed borrowers in high-cost loans that carried an even higher risk of delinquency and default, the state said in its complaint. The complaint alleged that Countrywide used loose underwriting standards to place borrowers in loans that quickly became unaffordable as introductory rates expired and borrowers' monthly payments dramatically increased.

Under the settlement agreement, Countrywide will help its borrowers who are in default or facing foreclosure save their homes through fast-track loan modification on subprime or option-ARM loans, resulting in reduced mortgage payments. The program offers a series of loan modifications, including lowering the interest rate as low as 3.5 percent for five years to make house payments more affordable. Alternatively, Countrywide can make loans interest-only for up to 10 years.

Countrywide has already begun contacting eligible borrowers in Colorado to determine if they qualify for a loan modification under the settlement, Suthers aid. The settlement requires Countrywide to complete the loan modification within 60 days of that borrower providing income information. During this time, any foreclosure proceedings are suspended. In addition, Countrywide will write off late fees and waive prepayment penalties on modified loans.

It is estimated that approximately 6,800 Colorado homeowners stand to benefit from the loan modification program. Waivers of certain late fees and prepayment penalties are expected to result in a combined savings of more than $2.1 million.

Borrowers who do not qualify for a loan modification under the settlement, or who previously went into default and lost their homes to foreclosure after only a few payments, may be eligible to receive compensation under the settlement.

A fund of $1.2 million has been set up for relocation payments to eligible Colorado borrowers. A separate fund of approximately $4.4 million will be used to compensate approximately 1,180 Colorado homeowners who could only make six or fewer payments before they could no longer afford their loans.

Under the settlement with Countrywide, $500,000 will be paid directly to the Colorado Division of Housing to support the Colorado Foreclosure Hot line. Evidence shows as many as one-half of homeowners who are in default or facing foreclosure never seek assistance from lenders or nonprofit, HUD-approved housing counselors. In contrast, nearly 80 percent of borrowers who contact the Foreclosure Hot line are able to save their homes from foreclosure.

The $500,000 payment will help expand the Foreclosure Hotline’s outreach efforts, in particular, to minority communities that historically have been reluctant to seek assistance. Homeowners who are having trouble paying their mortgage are encouraged to call the Hotline at 1-877-601-HOPE (4673). The hot line is staffed with nonprofit, HUD-approved housing counselors who can help explain loan options. The hotline takes calls free-of-charge.