National Mortgage Settlement

The National Mortgages Settlement is a settlement between U.S. states and the nation’s largest mortgage lenders over foreclosure abuses.  Every state but one—Oklahoma—has signed on to the deal. The settlement is described by U.S. Attorney General Eric Holder as the “largest joint federal-state civil settlement in the history of this nation.” The idea behind the settlement is to provide help to struggling homeowners and to provide recovery for homeowners that lost the homes to foreclosure. The 5 participating lenders to the Settlement are:

  • Bank of America
  • Ally(formerly GMAC)
  • Wells Fargo
  • Chase
  • Citi Bank

How The Settlement Came About

 About one in five Americans with mortgages owe more to the bank than their home is worth, with collective negative equity sitting around $700 billion. On average, negative equity homeowners are underwater by $50,000 each. According to the Mortgage Bankers Association, approximately 1.5 million homeowners are 90 days or more delinquent on their mortgages but not yet in foreclosure. Since the beginning of 2007, approximately 4 million homeowners have entered into the foreclosure process amidst the biggest housing downturn since the Great Depression.

 As the housing market crashed, banks began foreclosing on a massive scale and stories began to surface that banks were foreclosing on homeowners using improper procedures or paperwork. In response, all 50 state attorneys general joined an investigation into the mortgage servicing practices of major banks that allegedly misdated documents, used “robo-signing,” and engaged in other fraudulent and semi-fraudulent practices. Robo-signing is the term used to describe when a mortgage servicing company does not review or verify foreclosure documents before signing them and moving forward with foreclosure proceedings. Since October 2010, state attorneys general, regulators and federal officials have been discussing a settlement with several big banks to compensate homeowners for damages arising from improper foreclosure procedures and to provide to relief to states and homeowners from underwater mortgages.

 Terms of the Settlement

The settlement is between 49 state attorneys general, the Justice Department, the U.S. Department of Housing and five major banks: Ally Financial Inc., Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co., and Wells Fargo & Co.  The exact value of the settlement is unclear, but could range from $26 billion to upwards of $39 billion. Money will be distributed based on a complex formula set forth in the agreement, and the total settlement value will ultimately depend on a number of factors.  The deal does not affect an individual’s ability to pursue private legal action in the future, nor does it prevent state and federal authorities from pursuing criminal enforcement actions or interfere with their ability to move current investigations forward, according to Holder. The deal establishes a monitor to track compliance with the terms of the agreement. Banks that violate the terms of the deal face penalties of $1 million per violation and up to $5 million for repeat violators.  Three states—New York, California and Massachusetts—have specifically reserved the right to pursue or continue to pursue separate litigation.

 The deal has four primary components: principal reduction, refinancing, payments to foreclosed homeowners and payments directly to states.

 1)     Principal reduction: $17 billion-$32 billion

 At least $17 billion will be allocated to mortgage debt forgiveness, forbearance, short sales and other assistance to homeowners, primarily by reducing the principal on mortgages that are both underwater and delinquent. The settlement could provide up to $32 billion in direct benefits to borrowers through settlement-related credits. This component of the settlement could assist up to 1 million homeowners.

 2)     Refinancing: $3 billion 

 Officials report that up to 750,000 homeowners who are underwater but still current on their mortgages will be granted relief in this component of the settlement, worth about $3 billion. Although these homeowners will not see their principal reduced, they will be able to refinance their mortgages at the current, near record low, interest rates.

 3)     Payments to foreclosed homeowners: $1.5 billion

 Approximately $1.5 billion is allocated to go to homeowners who had their homes foreclosed upon between Jan. 1, 2008, and Dec. 31, 2011, using the improper procedures for which banks were originally investigated, and who meet certain other criteria. Each homeowner in this category will receive up to $2,000.

 4)     Payment to states and the federal government: $3.5 billion

 States will receive $2.75 billion and the federal government will receive $750 million. The state funds will help fund consumer protection and state foreclosure protection efforts.

 California’s Share of the Settlement

 Most state attorneys general have already estimated the total benefit their states will receive, including homeowner relief (loan modifications, principal reductions, direct relief etc.), refinancing for underwater borrowers and direct cash payments to state government. States that were hit harder by the housing downturn – like California, Nevada and Florida – will receive a larger chunk of the settlement. California, for example, could receive up to $18 billion in benefits, more than any other state.

Are YOU Eligible for Help Under the Settlement?

Over the next six to nine months, the Settlement administrators involved in the lawsuit will identify homeowners eligible for benefits. These benefits may include immediate cash payments, loan modifications with mortgage balance reductions, or refinancing. If you are eligible, you should receive a letter from the administrator in your state. All actions resulting from the settlement are scheduled to take place over the next three and a half years.

Please note that benefits are not guaranteed even if you meet eligibility requirements; every case will be considered individually. However, you may be eligible for help under the national mortgage settlement if any one of these situations applies to you:

Scenario 1: You lost your home to foreclosure between 2008 and 2011; OR

Scenario 2: You are current on your mortgage payments, but underwater (you owe more on your mortgage than the current value of the house); OR

Scenario 3: You are behind on your mortgage or at immediate risk of falling behind.

Scenario 1: YOU ALREADY LOST YOUR HOME TO FORECLOSURE

Potential Benefits

Cash payment of approximately $1,800-$2,000

If you still owe any money on the mortgage because of an outstanding balance after a foreclosure sale, you may have an opportunity to have some or all of that debt forgiven.

Preliminary Checklist for Eligibility

  • When you owned the home, you occupied the house as the owner, and the property had no more than four separate units.
  • Your foreclosure sale was completed between Jan. 1, 2008 and Dec. 31, 2011.
  •  Your mortgage was serviced or owned by Bank of America, JPMorgan Chase, Citibank, Wells Fargo or Ally Financial (formerly GMAC).

Process

If you are eligible for benefits, you should receive a claim form in the mail from the settlement administrator. If you are concerned you will be difficult to locate, you should contact your Attorney General’s Office, and they will forward your information to the appropriate person to ensure you are contacted if you are eligible.

Scenario 2: YOU ARE CURRENT ON YOUR MORTGAGE, BUT UNDER WATER

 

Potential Benefits

Eligible underwater borrowers may have an opportunity to refinance loans at lower interest rates.

Preliminary Checklist for Eligibility

  • You own and occupy your property, and your property has no more than four separate units.
  • Your mortgage is serviced and owned by one of these banks: Bank of America, JPMorgan Chase, Citibank, Wells Fargo, and Ally Financial (formerly GMAC). Note that Fannie Mae and Freddie Mac-owned loans may be eligible for refinance under a separate program called HARP. To see if your loan is owned by Fannie Mae or Freddie Mac, go here.
  • Your mortgage is underwater—i.e., you owe more on the loan than the current value of the house.
  • You have not made any late mortgage payments within the last 12 months.
  • You have not been through a bankruptcy or foreclosure in the last 24 months.
  • Your current interest rate is at least 5.25% or more
  • The refinance would reduce your interest rate by ¼ of a percentage point or your monthly payment by at least $100.
  • Your mortgage is not a manufactured home loan, and it is not insured by the Federal Housing Administration (FHA) or the Veterans’ Administration (VA).
  • There are no restrictions on when your mortgage was made – could be any date.

Process

The participating banks (BofA, JPMorgan Chase, Citibank, Wells Fargo and Ally Financial) are required to notify eligible borrowers of the availability of the refinance program, but borrowers may also contact the banks directly for information. The application process has yet to be determined.

Scenario 3: YOU’RE LATE ON THE MORTGAGE OR IN IMMINENT RISK OF MISSING PAYMENTS

 

Potential Benefits

 Loan modification. You may have opportunity to receive a loan modification with a principal write-down (i.e., a reduction in the amount you owe) that would reduce your monthly payments.

Forbearance. If you are unemployed, you may have an opportunity to get mortgage payment forbearance (the lender will delay foreclosure and offer a plan for allowing you to catch up on payments).

 Short sale. You may have the opportunity to have the bank facilitate a short sale (i.e., you would sell your property for less than the amount of the mortgage to avoid a foreclosure).

 Deed in lieu. You may have an opportunity to proceed with a “deed in lieu of foreclosure” (i.e., you give the lender all legal rights to the property in exchange for its agreement not to pursue foreclosure formally).

 Relocation assistance. You may be able to get funds to help pay relocation expenses following a foreclosure.

 Relief from further financial obligations after home sale. You may have an opportunity to receive relief from paying some or all of the amounts that might still be legally owed on the mortgage loan following a foreclosure sale or short sale.

Preliminary Checklist for Eligibility

  • You own and occupy your property, and your property has no more than four separate units.
  • Your mortgage is serviced or owned by Bank of America, JPMorgan Chase, Citibank, Wells Fargo or Ally Financial (formerly GMAC).
  • Mortgages owned by Fannie Mae or Freddie Mac are not eligible. To see if your loan is owned by Fannie or Freddie, go to www.makinghomeaffordable.gov/tools/does-fannie-or-freddie-own-your-loan/Pages/default.aspx.
  • There are no restrictions on when your mortgage was made – could be any date.

Process

You may be contacted directly by one of the five participating mortgage servicers, but you should also contact your servicer to request consideration for the range of options that might be available to you. You may want to consult a HUD-certified housing counselor for assistance.

Some details of the process are yet to be determined.

 IMPORTANT RESOURCES

For more information on the National Mortgage Settlement, contact our office for a consultation, or click on the links below.


California Attorney General: http://oag.ca.gov/nationalmortgagesettlement

National Mortgage Settlement Main Web Site: http://www.nationalmortgagesettlement.com


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