Thursday, February 9, 2012

Will the Mortgage Settlement Help You?

There was a big mortgage settlement announced today. Five major banks have agreed to a $25 billion settlement to address past foreclosure and loan servicing abuses. There is a lot of information and opinions about the settlement and how it could help the housing market but let's review the basics of the settlement.

1. The participating banks are: Bank of America, JPMorgan Chase, Citibank, Wells Fargo and Ally Financial.

2. Only homeowners who have a mortgage owned by one of the participating banks OR homeowners who had a mortgage owned by one of the participating banks and were foreclosed on between 2008 and 2011 are eligible to participate in the settlement.

3. The $25 billion will be roughly divided as follows (remember, this ONLY applies to loans owned by one of the 5 participating banks):

$10 billion for reducing principal on loans for borrowers who are either delinquent or at imminent risk of default and are underwater — meaning they owe more on their mortgages than their homes are worth.
NOTE: Anyone current on a mortgage and people with loans owned or guaranteed by a government entity, including Freddie Mac, Fannie Mae or the Federal Housing Administration will NOT be eligible for a principal reduction.

$3 billion for refinancing loans for borrowers current on their mortgages and underwater.

$7 billion toward other kinds of assistance: forbearance of principal for unemployed borrowers, anti-blight programs (programs to help improve areas where there are a significant number of foreclosed or abandoned homes) and short sales.

$1.5 billion cash payments to borrowers who were foreclosured between 2008 and 2011 and meet other conditions. Estimates are that up to 750,000 borrowers could receive checks for $1,500 to $2,000.
The dispute about these foreclosures came as a result of a practice called "robo-signing", where employees of the mortgage companies would sign foreclosure documents without reviewing them as required. Rather than review the documents, the employee would assume them to be correct and automatically sign them, like a robot.

$3.5 billion will be used to repay public funds lost as a result of servicers' misconduct.

$1 billion will be paid by Bank of America to resolve a federal investigation. Half of that $1 billion will be used to fund a loan modification program for Countrywide borrowers who are underwater on their mortgages. Bank of America acquired Countrywide in 2008.

What everyone really wants to know is how this program will affect them. There is some great information here and here about how this program will affect both those who qualify for the settlement and those who live next door to them.


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