Countrywide Financial Corporation will offer hundreds of Monterey County homeowners facing foreclosure a chance to stay in their houses, thanks to a settlement between the notorious lender and the California Attorney General’s Office.

Countrywide has already halted home auctions for dozens of locals. Starting Dec. 1 Countrywide will present lower interest payments and, in some cases, principal reductions for thousands of Californians who bought subprime and pay-option adjustable rate home loans. The settlement covers loans in which the first payment was due between Jan. 1, 2004 and Dec. 31, 2007. Countrywide estimates California has 124,000 eligible borrowers.

“It’s definitely going to help a lot of families,” says Ariel Torres, who auctions off foreclosed homes near the county courthouse. Torres estimates a quarter of local foreclosures stem from Countrywide loans.

According to Foreclosure.com, more than 400 county homeowners with Countrywide loans are in the foreclosure process. But this doesn’t mean that everyone with a Countrywide loan will benefit– and it remains to be seen whether owners will choose to stay in their homes when falling property values have put them in an upside-down mortgage.

On Oct. 6, Attorney General Jerry Brown announced the multi-state, $8.68 billion settlement with Countrywide. Brown’s lawsuit alleged Countrywide, which is now owned by Bank of America, pressured homeowners into unaffordable mortgages and deceived borrowers by misrepresenting loan terms. The predatory lending settlement includes about $3.5 billion in home loan and foreclosure relief for California borrowers.

Countrywide will now attempt to keep people in their homes by giving subprime borrowers affordable mortgage payments that don’t exceed 34 percent of a household’s gross income. Only borrowers with pay-option loans will also be eligible to have their principals reduced to 95 percent of their home’s current value. This means homeowners who owe more than their house is worth may still walk away.

Will and Gerri Denny are in this camp. The Soledad couple bought at the end of 2005 for about $640,000. Now she says Soledad’s new homes sell for around $300,000.

“I’d like to keep the house,” Gerri says, “but I’m not going to pay any taxes until they tell me that it is only worth $300,000.”

Will says they stopped making loan payments in January after they bought back their landscape supply business. Countrywide recently canceled their home’s foreclosure. Since they are in a pay-option loan, the Dennys will likely be eligible for a lower interest rate and principal.

But Will says selling concrete has been tough lately, and he doesn’t know if they could even afford a smaller loan payment: “We were making enough to be able to afford this house and the business, but it’s just not there. The economy has got to change before any small business like us is able to hang in there.”