$26 Billion Foreclosure Settlement and What It Means For You

The details of the settlement, however, are not entirely clear. Struggling homeowners will have many questions like how exactly will this money be distributed, what is the time frame of the payments and, finally, who is eligible to be compensated? We try to answer some of these questions here.

Details of the Settlement

The settlement came as a result of a 14 month investigation started in the fall of 2010 into the mortgage servicing industry by 49 state Attorney Generals amid uproar over revelations that banks evicted people with false or incomplete documentation. 4 million families have lost their homes to foreclosure since the start of the housing crisis in 2007 and 3.3 million more homeowners are currently undergoing or close to foreclosure.

The settlement involves mortgage servicers Bank of America, J.P. Morgan Chase, Wells Fargo, Citigroup and Ally Financial (formerly GMAC), all of whom decided to settle after being investigated for fraudulent foreclosure practices.

The amounts paid by each bank are directly connected to their market share of the mortgage servicing industry. Bank of America has the biggest share, and will provide $11.8 billion to the settlement, followed by Wells Fargo with $5.4 billion, JP Morgan Chase with $5.3 billion, Citigroup with $2.2 billion and $310 million from Ally Financial. Bank of America will also contribute an additional $1 billion for Federal Housing Administration loans.

Keep in mind that out of the $26 billion only $5 billion will be in paid out cash – the remaining $17 billion will be used to reduce the principal for homeowners how are underwater on their mortgages over a period of 3 years. It should also be pointed out that mortgages owned by the Fannie Mae and Freddie Mac are not covered, which excludes about half the nation’s mortgages from this settlement.

The often quoted $26 billion figure might even balloon to $30 billion if the government can bring nine other major mortgage servicers join the settlement – something that is currently under consideration by the government.

Who Is Eligible For Compensation and How Much Should They Expect?

The settlement money will be doled out under a complex formula created that incentivizes banks to help hardest-hit borrowers. The banks will get varying degrees of credit for different kinds of help.  Banks will get more credit for things like reducing principal owed on underwater mortgages and renegotiating mortgages to help families keep their homes. They will get less credit, however, for short sales or taking losses on loans that were likely to go bad anyway.

To be eligible for the settlement homeowners must have mortgages that are owned and held by the nation’s largest mortgage servicers, i.e. the five big banks mentioned above. Benefits could range from loan modifications, principal reductions or direct payments from lenders. Remember that only homeowners in the states who joined the settlement are eligible for compensation; borrowers from Oklahoma, for example, are not be eligible for direct relief because the Oklahoma state government elected to not take part in the settlement. This table contains the complete list of which states took part in the settlement and how much each state will receive in compensation: http://www.scribd.com/webber3292/d/81077696-State-Settlement-Amounts

The banks participating in the settlement will grant homeowners with underwater mortgages $10 billion worth of principal reduction, $3 billion in refinancing and $7 billion in other forms of mortgage relief such as forbearance for unemployed borrowers. All of this will cover roughly one million borrowers in total. Another $1.5 billion will be spent on direct cash payments of $1,500 – $2,000 to around 750,000 borrowers who lost their homes to questionable foreclosure practices from 2008 to 2011. $3.5 billion will go to various state and federal governments to bolster resources for legal aid, counseling services for borrowers facing foreclosure and to help fund future investigations into mortgage-fraud.

Time Frame of the Settlement

Bureaucracy, as the saying goes, moves slowly. Under the terms of this settlement the banks will have six to nine months to determine who is eligible for relief and three years in which to distribute the aid. This is, of course, little comfort to the millions of struggling homeowners who need help right now.

Long Term Prognosis

Economists have little hope of any immediate boost to the economy from this settlement partly because it affects comparatively so few people (just under 2 million), and the repayment terms are stretched out over 3 years. There is hope, however, that the settlement will have a positive effect in the long term.

Homeowners not directly eligible to get help from this settlement might still see benefits in the form of reduced  foreclosure rates in their area, stabilized home values and powerful new mortgage servicing standards and consumer protections. This settlement is the first step in the federal government’s multi-year fight to hold the big banks accountable for their actions leading up to and during the financial crisis.

The banks involved in the settlement could still be liable to further criminal prosecution related to the housing crisis as well as private lawsuits. From now on banks and other mortgage servicers will have to adhere to tougher standards for servicing loans and executing foreclosures.

California has been hit harder than most by the foreclosure crisis. A disproportionate number of housing loans in the state are either delinquent or exceed the value of the underlying property. In recognition of the extraordinary hardship faced by homeowners in California, the state will get $16 billion of the $26 billion settlement – the largest share of all 49 States.

If you had any questions about your mortgage or wanted to see if you qualify for this settlement, contact Team Aguilar today!

For more information on the settlement please visit: http://www.nationalmortgagesettlement.com/faq

Image sources: http://www.scribd.com/webber3292/d/81059707-Settlement-Graphic

9 thoughts on “$26 Billion Foreclosure Settlement and What It Means For You”

  1. Alex…. You know I love you and I think you are great… However:

    “Most of the settlement money will be used to provide some form of restitution to homeowners who have been directly or indirectly affected by these acts.”

    Is incorrect…. “Most” of the settlement money ($17 Billion of the $26 Billion) is going to “National Foreclosure Initiatives” .. which is hokey pokey stuff considering all of the homeowners out there that already faced reality and moved on in life.

    It DOES nothing for the cash buyers out there that paid more then what they should have paid for their homes due to artificial home values created from lax lending standards that created the real estate bubble in the first place. The settlement pays little to nothing for the homeowners who were already foreclosed on or short sold their homes to move on.

    $26 Billion is piddle considering all of the damage that was created and $17 Billion of that settlement is NOT going to the homeowners that already moved on in life.

  2. I agree with Paul up to a point. The 26 billion is not a panacea to right all the wrongs of the foreclosure crisis. The actual monetary compensation to people who have lost everything and are now struggling is pitiful. However, this deal is important because it is the first real attempt by the federal government to hold the banks accountable for their irresponsible and illegal behavior in the wake of the foreclosure crisis and put them on notice. Hopefully the settlement tells these lending institutions that it is not business as usual and that they are being watched and will be held to a higher standard from now on. This settlement, as small as it is, took about many years to reach after a lot of obstruction in the House and Senate and is still an ongoing process.

    The 17 billion will be going to into principal reduction on mortgages for struggling families. the government does not directly control who gets the reductions, it is up to the lending institutions to dole them out. It is unfortunate for cash buyers whose homes have lost value due to the bubble, but they’ve paid in cash and they already own their homes. And let’s be honest, there aren’t that many of them out there compared to people who are barely holding on to their mortgages. People who have trouble keeping a roof over their heads need immediate help, as opposed to those who lost money making speculative investments during the housing bubble.

  3. Whew!! This is unbelievable!! A huge figure for foreclosure settlement. People have lost homes in the past and this bank offering solutions to help consumers in the State from foreclosure is appreciable. You gotta read this blog to get hold of the information that can save you from foreclosure. I am gonna make most of this piece and so should you out there.

  4. Hi Alex,
    It is good to know that California gets the largest share of all 49 States because it hits really hard by foreclosure crisis.26 billion foreclosure settlement is a good step for overcoming these crisis.

  5. I love reading your articles Alex but I somewhat agree with Paul in the first comment. These BIG banks will get the most profit from these $17- $26 billion fund. Knowing how the banking world works, these five giants surely have some kind of an agreement with the federal government when it comes to this. This data was just release to at peace mortgage loaners that they are somehwat getting the governments support.

  6. Very interesting article which spurned a great reaction and arguments both for and against. Enjoyable reading folks.

  7. Eastern Sierra Real Estate

    Nice article and interesting article, so far, so good. Thanks Alex!

  8. How miidealsng. How miidealsng. First, deed in lieu is an *rapid* foreclosure. Second, lenders do say the yes more often. Lenders always push a Loan Modification (which you seemed to have left out of the clip) because they’d rather you keep the property. If not possible then they push the Deed in Lieu to collect from the MI (Mortgage Insurance). It can be done in a short sale but it can take 2 to 6 months. A foreclosure is the last thing they want given the length of time. Are you an agent? I smell propaganda. +1Was this answer helpful?

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