Oct. 6 (Bloomberg) -- Countrywide Financial Corp., the mortgage lender acquired by Bank of America Corp., will settle fraud complaints in 11 states by cutting the amount borrowers owe and their interest rates at a cost of $8.4 billion.

The accord, which includes relocation assistance for homeowners whose homes have been or are about to be foreclosed, will affect about 400,000 customers and resolves lawsuits filed by attorneys general in California, Illinois, Connecticut and Florida, and complaints from seven other states.

California Attorney General Edmund G. ``Jerry'' Brown and Illinois Attorney General Lisa Madigan sued the Calabasas, California-based company on June 25, the same day Bank of America shareholders approved the acquisition. Countrywide had lost $2.5 billion in 2008 by that time because of rising defaults and foreclosures. The package announced yesterday will likely become the largest predatory lending settlement in history, Brown said.

``Countrywide must now bail out homeowners it recklessly misled into mortgages doomed to fail,'' Connecticut Attorney General Richard Blumenthal said today in a statement.

Madigan's goal was ``to help homeowners now,'' the chief of her consumer protection division, Deborah Hagan, said. Illinois's claims against Countrywide founder Angelo Mozilo aren't part of the settlement.

`Loan Modification'

``This loan modification program is the first program in the country that is mandatory,'' Madigan said in a press conference at her office in Chicago today. The accord is a ``a model that other lenders and services as well as the U.S. Treasury should look at.''

Bank of America spokesman Dan Frahm said ``this agreement satisfies the claims of certain states against Countrywide,'' adding that the bank wasn't admitting or denying any wrongdoing.

Florida Attorney General Bill McCollum sued the company on June 30. Yesterday's accord settles those actions and grievances lodged by Texas, Arizona, Washington, Iowa, Ohio, Michigan and North Carolina, Frahm said.

``We will be determining, with the states, those customers who are eligible,'' Frahm said of the loan restructuring portion of the accord. ``We will reach out to those customers who are eligible.''

In Florida, Bank of America will employ 5,000 specialists to handle applications under the accord, said Elizabeth Ferrer, the banks' president for the state, said on a conference call with state officials from Tallahassee.

Suspend Foreclosures

Ferrer said people who are likely to qualify will be contacted starting Dec. 1 and that the company will suspend foreclosures in the meantime.

About $1 billion of the nationwide settlement will go to Florida, McCollum said on the call. As many as 57,000 Florida homeowners may qualify, he said.

``What we settled for is in best interest of everybody,'' McCollum said. ``A lot of people's homes will be saved.''

Countrywide has about 500,000 home loans in Florida, with 73,000 of those made to subprime borrowers, McCollum said. Half of the subprime loans are in foreclosure, he said.

In addition to the restructuring of some loans, borrowers who defaulted on mortgages before the sixth payment will be refunded their closing costs, while others will be given relocation money `` to help them move out of their property and get their feet on the ground,'' Frahm said.

No New Charges

Bank of America, based in Charlotte, North Carolina, will take no new charges in connection with the accord. The settlement amount was ``within the range of losses'' contemplated by the bank when it acquired the lender, Frahm said.

Bank of America fell $2.26 to $32.22 in New York Stock Exchange composite trading.

``We tried to focus on the riskiest loans with the highest delinquency rates,'' Illinois's Hagan said. Some borrowers, who took out adjustable rate mortgages that are about to reset at higher levels the borrowers cannot afford, will have their loans restructured so that they get the benefit of their introductory rates for as long as five more years, she said.

``With this settlement, homeowners will receive direct relief from the catastrophic damage caused by Countrywide,'' Brown said in a statement. ``Countrywide's lending practices turned the American dream into a nightmare for tens of thousands of families by putting them into loans they couldn't understand and ultimately couldn't afford.''

The cases are People of the State of Illinois v. Countrywide Financial Corp., 08-cv-04210, U.S. District Court, Northern District of Illinois, Eastern Division (Chicago), and People of the State of California v. Countrywide Financial Corp., 08-cv- 04861, U.S. District Court, Central District of California (Los Angeles).

To contact the reporter on this story: Andrew M. Harris in Chicago at aharris16@bloomberg.net.

Last Updated: October 6, 2008 16:25 EDT