In case you haven’t heard by now, the so-called “National Mortgage Settlement” was finalized today.
It’s the largest multi-state settlement since the Tobacco Settlement back in 1998, related to robosigning allegations that took place over the past several years.
Essentially, some of the nation’s largest loan servicers routinely signed off on foreclosure documents without doing their due diligence, and/or without the presence of a notary.
It will provide more than $25 billion in assistance to homeowners, participating states and the federal government.
For the record, all 50 states participated except for lonely old Oklahoma.
The offending parties in the National Mortgage Settlement include:
– Bank of America
– JPMorgan Chase
– Wells Fargo
These are the nation’s five largest mortgage loan servicers.
Benefits will be provided to both borrowers whose loans are owned by the settling banks as well as to borrowers whose loans they service.
In other words, your mortgage may have been originated by another company and sold to one of these companies to be serviced. So be sure to check your loan documents if you think you may be eligible.
Where the Settlement Money Will Go
The bulk of the money, at least $10 billion, will go toward principal balance reductions. In other words, those who hold underwater mortgages will see their balances drop to get them above water.
But the assistance will only be directed toward those who are either delinquent or at imminent risk of default as of the date of the settlement.
The principal reduction will likely be facilitated via a loan modification, so borrowers will ideally end up with a smaller loan balance and a lower mortgage rate, which will certainly make mortgage payments much more affordable.
State attorneys general believe principal reductions will prove beneficial, and as a result, will be employed by other mortgage lenders not involved in the settlement.
Another $7 billion or more will be used for short sales and transitional services, forbearance of principal for unemployed borrowers, anti-blight programs, and benefits for service members forced to sell their homes at a loss as a result of a “Permanent Change in Station” order.
Loan servicers will also have at least another $3 billion at their fingertips to provide refinancing to borrowers who are current, but underwater on their mortgages.
Additionally, $1.5 billion will be distributed to roughly 750,000 borrowers who have already lost their homes to foreclosure.
The states involved will also receive immediate payments of roughly $3.5 billion to help fund consumer protection and state foreclosure protection programs.
How and When Can You Get Help?
If you think you qualify for assistance, you can contact the offending mortgage servicer directly, although they should be contacting you…
For borrowers who lost their homes between January 1, 2008 and December 31, 2011, a claim form should be sent to you for one of those shiny checks.
You can also contact your individual Attorney General’s office to check eligibility, or to provide a current address assuming you moved and/or have been foreclosed on.
Unfortunately, relief won’t be immediate under the settlement. Over the next 30-60 days, settlement negotiators will be selecting an administrator to oversee the program.
And over the next six to nine months, this administrator will work with attorneys general and loan servicers to identify relief recipients.
It is expected to take three years to execute the entire settlement, so patience is a virtue here.
Who is Left Out of the National Mortgage Settlement?
Borrowers with Fannie Mae and Freddie Mac owned mortgages. And those with FHA loans.
This is more than half of the homeowners with mortgages in the United States.
Additionally, those that have positive home equity likely won’t see any relief from this settlement.
Essentially, those that paid down their mortgages, or came up with a reasonable down payment, won’t qualify for assistance under this settlement.
While it seems like they’re losing out, they aren’t. This settlement is about shoddy foreclosure practices, so those that weren’t affected obviously wouldn’t receive any benefit.
However, they may receive the indirect benefit of a healthier housing market and higher home prices if the settlement works as it should.
It’s worth noting that the banks involved are still accountable for claims that may arise out of any other wrongdoings committed during the lead up to the mortgage crisis.