$25 Billion in Homeowner Help?

Thursday February 9th, Bank of America Corp, Wells Fargo & Co, JPMorgan Chase & Co, Citigroup Inc and Ally Financial Inc have agreed to a $25 billion government settlement.  The settlement was aimed at banks with the lions share of loans and questionable (or perhaps fraudulent) loan practices, foreclosures as well as mishandling loan modifications.

The 16 month-long negotiation is aimed at providing more help for homeowners.  Although many say this is a step in the right direction, it's exactly that. A step.  The settlement will reach many homeowners, but may fall short of expectations.  It's estimated that this settlement will help approximately 1 million homeowners.  49 states agreed to the settlement.  New York and California being the last to agree, possibly because California will receive the lion's share of proceeds. The lone ranger being Oklahoma, who felt the settlement greatly overreached the state's authority, and could be unfair to borrowers who continue to pay their mortgage.

It may come as not surprise that many consumers are still leery of any deal or settlement.  With questionable fees and practices imposed on consumers for years, more than 2 million homes lost to foreclosure, possible insurance fraud, the public has the right to be leery of any settlements. Some call this a stealth bailout for the banks, and with a $2,000 per loan file "penalty" it seems as though the banks might be getting a better deal than we think.  Based on the secondary mortgage market (lines of credit, or second liens) the banks can modify a first position lien making a borrower more likely to pay a second.  Either way, the bank is getting paid. If a borrower defaults on a first position loan, the secondary loan is worth nothing. 

So, now I'm sure you're wondering about the nuts and bolts of the settlement . . . me too.

-Immediate aid to homeowners needing loan modifications now.  The servicers are required to work off up to $17 billion in principal reduction and other modifications.

-Immediate aid to borrowers who are current, but whose mortgages currently exceed their home's value. Up to $3 billion must be provided by servicers in refinancing relief nationwide.

-Immediate payments to borrowers who lost their homes to foreclosure.  $1.5 billion will be distributed to approximately 750,000 borrowers nationwide.

-Nationwide reforms to servicing standards. Better staffing, training, communication with borrowers, points of contact, as well as appropriate standards for executing documents in foreclosure cases, ending improper fees and ending dual-track foreclosures. 

-State Attorney General oversight of national banks. National banks will be required to report compliance with the settlement, and servicers will have to pay heavy penalties for non-compliance.

What do you think?  There are plenty of people out there that think the big banks will fail again as they have in the past, even with the settlement calling for more oversight.

-Mandy Rockefeller, Associate Broker, Realtor, GRI, SFR

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