Countrywide Faces $1.2B of Negative Amortization.

Calabasas, CA -- Countrywide Financial Corp., one of the largest funders of payment-option ARMs in the nation, is owed at least $1.2 billion from borrowers who have chosen to forestall interest payments.

Roughly 5.36% of CFC's POA portfolio ($1.5 billion) is 90 days or more late, according to documents the company filed with the Securities and Exchange Commission.

According to the lender's recently filed 10-K report, CFC holds $28.4 billion in POAs on its balance sheet, 72% of which carry some type of mortgage insurance coverage.

Over the past few years POAs have become controversial because they offer borrowers four different payment plans each month, including "negative amortization" where the customer can keep payments artificially low by adding on to the debt owed.

"Our borrowers' ability to defer portions of the interest accruing on their loans may expose us to increased credit risk," the lender notes in the filing.

When the POAs were originated, the average FICO score was 717 but the lender notes that 81% of the mortgages are "stated income" loans where the borrower states his/her income and the company accepts it as fact.

Many of the loans are backed by homes in California and Florida, two of the weakest housing markets in the United States.