Federal agencies and state attorneys general recently announced that the five largest mortgage servicers have agreed to pay up to $25 billion to settle legal claims related to wrongdoing during the foreclosure crisis. The participating mortgage servicers include Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial. If additional mortgage servicers join in the settlement, the total amount of the settlement could reach $30 billion or even $45 billion.
Where will the settlement money go?
It’s estimated that up to two million former and current homeowners will receive some form of help under the terms of the settlement. The settlement money will be allocated as follows:
- $10 billion to principal reduction
- $3 billion to underwater mortgage refinancing
- $7 billion for other mortgage relief, such as forbearance
- $1.5 billion for cash payments of $2,000 to an estimated 750,000 borrowers who lost their homes to foreclosure from January 2008 through the end of 2011, and
- $5 billion to participating states and the federal government.
The money will be distributed over the next three years, but incentives are in place to encourage the banks to distribute the money in the next 12 months and to help those homeowners who are in most need of relief.
Who gets the money?
It’s still unclear who exactly will be eligible for help under the terms of the settlement. But some classes of borrowers will clearly not benefit, including the following:
- Borrowers whose loans are not serviced by the participating mortgage servicers
- Homeowners in Oklahoma (Oklahoma is the only state that has not agreed to sign off on the settlement), and
- Borrowers whose loans are owned by Fannie Mae or Freddie Mac. (To find out whether your loan is owned by Fannie Mae or Freddie Mac, use the loan look-up tools on their websites at www.fanniemae.com/loanlookup and www.freddiemac.com/mymortgage.)
The mortgage servicers participating in the settlement will determine which borrowers are eligible for relief over the next six to nine months. If you think you might be eligible, you may want to contact your servicer directly.
What do the mortgage servicers get in return?
In exchange for their settlement payment, the mortgage servicers will no longer be subject to state and federal civil lawsuits for wrongdoing related to the foreclosure crisis, including robo-signing, the charging of excessive late fees, and the wrongful denial of loan modification applications. However, banks may still be subject to criminal prosecutions and private lawsuits.
For more information on the mortgage settlement, visit www.nationalmortgagesettlement.com.