There may be a way out of trouble, after all, for thousands of Sacramento-area borrowers struggling with risky housing-boom mortgages from Countrywide Financial Corp.

A legal settlement announced Monday by Countrywide parent Bank of America and California Attorney General Jerry Brown promises an $8.4 billion rescue operation to save an estimated 125,000 California borrowers – among 400,000 households nationally – from losing their homes.

Bank of America agreed to freeze and lower interest rates, suspend foreclosures and waive late fees for live-in homeowners who took Countrywide loans from 2004 through 2007. A few who already lost homes also are eligible for some aid. The firm said it will begin reaching out Dec. 1 to borrowers deemed eligible for help.

"This is strongly a positive step to start stabilizing the home market," said Stephen Levy, director of the Center for the Continuing Study of the California Economy. "This is probably bigger than the (Wall Street) rescue plan. I think it probably signifies the beginning of a trend where we're going to see renegotiations."

It was unclear Monday how many Countywide borrowers in the Sacramento area might get relief. Countrywide was the largest residential lender in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties from mid-2005 to mid-2007. During that time, a period marked by some of the real estate industry's riskiest lending, Countrywide made 34,300 loans locally.

Bank of America bought Countrywide – once the nation's largest mortgage lender – in July after the company imploded under the weight of its defaulting loan portfolio.

Brown described the settlement Monday as "the biggest mandatory loan reduction in American history." He said it will cut $3.5 billion in loan obligations in California.

Countrywide borrowers quickly took notice.

"This would be great," said Larry Norton of Auburn, who got a Countrywide home loan in 2005 and refinanced into another in 2006. "I'd just like to get out of this loan," he said. He is current on payments after falling behind earlier this year. "The bottom line here is survival."

Mario Borbon of Citrus Heights also has a Countrywide loan and an expensive three-year prepayment penalty that bars him from refinancing. Now he's several months behind on payments.

Both borrowers owe more than their homes are worth. Both said they didn't fully understand how risky their loans – called payment option ARMs – were when getting them. Allegations of deception and pressure tactics were key provisions of the lawsuits filed by several states against Countrywide last June.

Bank of America didn't return a call seeking comment Monday. But in a news release the bank said it will be less expensive to restructure loans than to foreclose. It noted the cost of the operation is within the range of losses expected when it bought Countrywide.

The settlement is limited to people who took out two kinds of loans, the lender said:

• Payment option adjustable rate mortgages, or payment option ARMS. These are mortgages that actually grow larger as most people make just a minimum payment. Between their third and fifth years, the monthly payments can double or triple. In 2006, about 26 percent of mortgages in El Dorado, Placer, Sacramento and Yolo counties were option ARMs, according to researcher First American Core-Logic, Loan Performance. Not all those loans were from Countrywide.

• Subprime loans. These are high-cost loans of last resort for buyers with a history of bad credit. They, too, are prone to sizable jumps in monthly payments. In 2006, 27 percent of home loans were subprime in the four-county area, according to a Bee analysis of federal Home Mortgage Disclosure Act data.

Both contributed to more than 21,000 foreclosures recorded in the region in 2007 and the first half of 2008.

Statewide, there were nearly 200,000 foreclosures during that period, according to MDA DataQuick.

Martha Lucey, president of Fresno-based nonprofit loan counselor By Design Financial Solutions, said the settlement was a step forward.

"For owners with subprime and option ARM loans this could really make a difference," she said. "To say they're going to suspend any foreclosures until they're sure they're ineligible is wonderful news."

She said such moves will free up nonprofit counselors and bank staffs "to deal with other cases. We're still having trouble," she said.

In Sacramento County's Foothill Farms neighborhood, homeowner Marvin Kohrn is anxiously awaiting details.

He has an option ARM loan owned by Countrywide and is a month behind on payments. He said his loan consumes 43 percent of his monthly income since his wife's death and loss of her Social Security income.

"I want to keep the home," he said. "I've been waiting for something substantial to happen."

Call The Bee's Jim Wasserman, (916) 321-1102. Read his blog on real estate, Home Front, at www.sacbee.com/blogs.