$25B Proposed Mortgage Settlement Breakdown

The lengthy negotiations between state attorneys general and five of the nation’s largest services have produced a proposed multibillion-dollar settlement over alleged foreclosure and mortgage loan-servicing abuses. The deal could be finalized by early February but many are still asking how this settlement would benefit them.

While terms could change, an early draft of the settlement shows little hope for those who lost their home to foreclosure. USA Today has details from both sides of the negotiations and breaks down what it’s likely to mean for borrowers and the housing market.

From USA Today:

Q: How might $25 billion be spent?
A: Terms could change, but the pot is likely to include:

• $17 billion for loan modifications. About 60% would go to reduce what people owe on their home loans. Other funds would be used to assist short sales, in which lenders agree to let borrowers sell homes for less than they owe, and to give unemployed borrowers a reprieve from making mortgage payments.

• $3 billion to help homeowners refinance at about a 5.25% rate.

• $5 billion in cash. About $1.35 billion would be distributed by states to eligible borrowers who were victims of loan-servicing abuses by one of the five servicers and lost their homes in foreclosure in 2008 through 2011. The rest would fund state and federal housing initiatives.

Q: If I take this payment, could I still sue if I felt I was wronged?
A: Yes, either as an individual or as part of a class action. It’s also possible you could get restitution from a national review of foreclosures underway among 14 large servicers, including these five. That review is being overseen by federal banking regulators.

Q: Who will get principal reductions?
A: Borrowers would have to be at least 60 days late on their mortgages as of a date that’s yet to be determined. They would also have to be underwater, meaning they owe more on their home than it’s worth. And their state and servicer would have to be participants in the settlement.

Q: Who won’t have any chance of a principal reduction?
A: That would be most borrowers, including anyone current on a mortgage and people with loans owned or guaranteed by a government entity, including Freddie Mac, Fannie Mae or the Federal Housing Administration. They hold about 56% of existing home loans, says magazine Inside Mortgage Finance.

Q: How much principal reduction are we talking about, and to how many borrowers?
A: Housing and Urban Development Secretary Shaun Donovan said in a recent speech that it could be 1 million borrowers. Numerous news accounts have said principal reductions would average $20,000.

But 1 million could be a high number, and $20,000 is likely to be low. The average underwater homeowner owes about $50,000 more than their home is worth, says economist Mark Zandi of Moody’s Analytics.

Q: Will I be able to apply for principal reduction or other help?
A: There won’t be a standard application process. But you’ll be able to request it from your servicer if you’re eligible to do so.

Q: What will servicers have to do differently?
A: Servicers will be more restricted in their ability to carry out a foreclosure while someone is pursuing a loan modification. They will also be expected to adhere to more consistent time frames, for instance, as to how long they have to inform borrowers of decisions regarding loan modifications.

Q: Why haven’t all states agreed to this?
A: Some attorneys general have complained that the banks won’t be contributing enough to compensate for the harm done.

Others don’t want the settlement to protect banks from future litigation, including how risky loans were packaged and sold to investors. Attorneys general in California, Massachusetts, New York, Nevada and Delaware have all expressed concern about the settlement talks.

Q: How tough are the potential settlement terms on the banks?
A: Not very, says Paul Miller, banking analyst at FBR Capital Markets. The banks will largely be modifying loans they own themselves and some they service for investor owners. By modifying loans, the banks may reduce their future default rates.

“The loan modifications would be something the banks probably would’ve done on their own anyway,” Miller says.

Rheingold says any settlement will seem inadequate against the trillions in lost equity that resulted from the unprecedented collapse in home prices. He says that the state attorneys general — who started this process — were “filling a void left by the Obama administration’s failure to adequately address the crisis.”

Check out USA Today for the full article and additional thoughts on how the settlement may impact you.

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Harris Holds Out For Tougher Terms

California Attorney General Kamala Harris is seeking tougher terms in the multi-state proposed agreement with banks over foreclosure practices.

The proposed deal, announced last week, is expected to range from $17 billion to more than $30 billion, depending on how many state attorneys general sign on to it and how many servicers take part in it. If California supports the deal covering the five biggest servicers, a settlement is likely to hit $25 billion but Harris is pushing for a broader probe of banks’ mortgage practices, including securitization of the loans.

According to Bloomberg, some analysts say that this move may be an effort to strengthen her political standing as a rising star in the Democratic Party. By holding out she can put her mark on the issue but it can be at the risk deepening the “blight and despair” for many of the 2.2 million distressed California homeowners needing assistance now who can’t afford to wait for a political gamble.

Bloomberg reports:

“A person involved in California’s negotiations confirmed the origination of mortgages is a sticking point in the deal, along with other releases of liability for violations of state “false claim” laws, and securitization, or the packaging of mortgages into bonds sold to investors.

The most recently drafted terms of the deal offer the banks such releases in exchange for a refinancing program for people who are still in their homes and current on their mortgage payments, the person said. It ignores victims of the most egregious origination fraud who were the first to lose their homes to foreclosure, the person said.”

Related articles

• Nationwide Draft Settlement Does Little for Homeowners (avidlawblog.wordpress.com)
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Friday Foreclosure Stories

Mortgage companies and servicers continue to suffer the effects of the crisis even though last year saw the lowest level of foreclosures since 2007 when the recession began. With an uptick in foreclosures expected in 2012, homeowners should take note of these blunders by mortgage companies to help avoid some serious consequences.

Maria and Joseph Perez purchased their Texas home in 2007 with a mortgage that was backed by Bank of America and serviced by a firm called Taylor, Bean & Whitaker. In August 2009, the couple refinanced the loan through Quicken in order to get a better rate.

When Joseph was contact by Bank of America about being behind on the old loan, he found out that Taylor, Bean & Whitaker, the mortgage servicer, had ceased operations the same month they had refinanced and Bank of America hadn’t received the funds from the new loan to pay off the old one. Further, Quicken had sold the servicing rights to the new loan to Bank of America who refused to acknowledge the refinance. Eventually, Bank of America acknowledged that they had refinanced their loan and stopped sending the payment notices until a year later when they were served with a foreclosure notice.

The couple ended up moving to a different state with their children but they are suing Bank of America for unspecified damages for pain and suffering.

Read more about the Perez’s story and others on CNN Money: Foreclosure nightmares: 3 families fight for their homes

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Fixing the Housing Market: The Principal of the Matter

Housing analyst Laurie Goodman says it’s all about the principal when it comes to providing assistance to both lenders and borrowers in this housing crisis.

In a recent CNN Money article Laurie estimates 2.5 million homes have already fallen to foreclosure since the bubble burst, and another 4.5 million mortgage holders have given up paying and are likely to lose their homes. She also warns that more than 10 million of the nation’s 55 million mortgage holders could default by 2018.

So what does Laurie recommend to fix the housing market? She explains that efforts to-date have fallen flat because they only benefit the borrower in the short term and don’t benefit the lender at all – mortgage modifications for example “aren’t helping because they only extended payments or reduced interest rates and don’t fix the fundamental problem of unsupportable debt loads.”

Which is why she says that principal reduction on the mortgage note is the only way to provide relief to borrowers that also benefits lenders. She found that lenders that reduced the principal (or total amount owed) by an average of 26% were far less likely to have to foreclose, and they actually provided mortgage back securities investors higher returns.

However, many banks are refusing principal-reduction deals to avoid the immediate write-downs that would be required. Additionally, many mortgage servicers are refusing principal-reduction deals because their fees are tied to the amount of principal rather than to the ultimate payback to investors.

Laurie states that banks “are ridden with conflicts of interest” that pit them against the interests of borrowers and investors, and many of the rules in place now are extremely large-bank-friendly, but borrower- and investor-unfriendly.” But while the housing crisis stays stagnant, that may be changing as the Treasury Department and several state attorneys general are encouraging lenders to offer principal-reduction options and “shared appreciation mortgage” (SAM) modifications.

If you are a homeowner looking for debt relief to avoid foreclosure, we encourage you to speak with an attorney, who is familiar with the changing laws and options available for homeowners, who can fight to make sure you receive a deal in your best interest, not the bank’s.

Related articles

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December home sales improve

There’s at least one sign of recovery in this market: The annual homes sales pace in December reached 4.6 million homes, up 5% from November’s pace and 3.6% from a year ago.

According to the National Association of Realtors on CNN Money, it was the third straight month of improvement in the pace of sales. The fourth-quarter sales volume lifted full-year sales to 4.26 million homes, up 1.7% from 2010 levels.

According to CNN Money:

“Home prices, however, remained depressed, largely because distressed sales continue to make up a significant part of the market.

Realtors said foreclosed homes sold for an average discount of 22% below market value in December, compared to a 20% discount a year ago. Meanwhile, short sales, which are homes sold for less than the amount owed on a mortgage, sold for a 13% discount, compared to a 16% discount in December 2010.

Foreclosures made up 21% of all sales, while short sales were 12%. Both figures were comparable to 2010.”

Joseph LaVorgna, chief U.S. economist for Deutsche Bank, said the current conditions should lead to improved prices and sales in the near term.

Other promising movement: A survey of home builders also showed an optimistic view of current sales conditions and customer traffic and the government’s report on home building is also showing improvement.

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The Election Season Turns Again to the Foreclosure Crisis

Presidential hopeful, Mitt Romney is turning his sights on the Florida primary and turning his campaign fight to the foreclosure crisis.

The New York Times quoted Romney at an outdoor rally in Ormond Beach, Florida:

“What’s he been doing for 15 years” since leaving his House position? “He’s been working as a lobbyist, selling influence around Washington. He’s been working for Freddie Mac, heard of those guys?”

Romney is alluding to Gingrich’s $1.6 million in consultancy payments from the government-backed, mortgage financing firm Freddie Mac. Gingrich has denied that he worked as a lobbyist for Freddie since stepping down as speaker in 1999. However, Gingrich said he was retained by Freddie Mac as a historian, but later added that he’d received consulting fees for providing “strategic advice.”

Romney retorts: “He said he was a historian, I would like him to release his records. What was his work product there? Freddie Mac figures in very prominently to the fact that people in Florida have seen home values go down.”

Gingrich’s Freddie Mac connection has hurt the former House speaker somewhat before his win in South Carolina. But if there was anywhere this message would resonate, it would be in Florida, one of the states most mired in the foreclosure crisis.

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Nationwide Draft Settlement Does Little for Homeowners

According to the Associated Press, a $25 billion draft settlement between the nation’s major banks and U.S. states over deceptive foreclosure practices has been sent to states for review.

Negotiations between banks and state attorneys general have been dragging on for more than a year over the fraudulent foreclosure practices that drove millions of Americans from their homes during the housing crisis.

While those who lost their homes to foreclosure are unlikely to get their homes back or benefit much financially from thesettlement, it could reshape long-standing mortgage lending guidelines and make it easier for those at risk of foreclosure to restructure their loans.

According to the AP:

The settlement would only apply to privately held mortgages issued between 2008 and 2011, not those held by government-controlled Fannie Mae or Freddie Mac. Fannie and Freddie own about half of all U.S. mortgages, roughly about 31 million U.S. home loans.

As part of the deal, about 1 million homeowners could also get the principal amount of their mortgages written down by an average of $20,000. One in four homeowners with a mortgage — or roughly 11 million people — owe more than their home is worth.

Under the deal:

— $17 billion would go toward reducing the principal that struggling homeowners owe on their mortgages.

— $5 billion would be placed in a reserve account for various state and federal programs; a portion of that money would cover the $1,800 checks sent to those homeowners affected by the deceptive practices.

— About $3 billion would to help homeowners refinance at 5.25 percent.

State attorneys general are meeting today to discuss the deal. But some states have disagreed over what terms to offer the banks, including California Attorney General Kamala Harris who announced she would not agree to a settlement that would allow too few California homeowners to stay in their homes and let the banks off easy for their wrongdoings.

Foreclosure reviews to take longer than expected

Mortgage borrowers who were foreclosed on between 2009 and 2010 may have to wait a little longer than expected for their independent review of their foreclosure.

As reported last year, more than 4 million mortgage borrowers who were foreclosed on between 2009 and 2010 have a chance to request an independent review of how their foreclosure process was handled.

However, USA Today is reporting that reviews of hundreds of thousands of foreclosure cases ordered by regulators last year will take months longer to complete than first expected, according to documents filed with federal banking regulators.

Under the deadlines that were set last April, the reviews should have been completed this month but reviews of Bank of America’s foreclosure cases could take until November and JPMorgan Chase may need just as long.

Review time frames have lengthened because the detail, scope and complexity of the reviews weren’t fully known last April, according to the Office of the Comptroller of the Currency.

USA Today reports:

“Letters were mailed in recent months to 4 million homeowners informing them of their right to request a review and including claim forms to fill out. As of Jan. 6, the OCC had received 61,000 claim forms, it says. In addition to BofA and Chase, the servicers are Wells Fargo, Citibank, Aurora Bank, EverBank, HSBC, MetLife Bank, OneWest, PNC, Sovereign and US Bank. The Federal Reserve is monitoring the reviews for SunTrust and Ally Financial.”

If you believe you may be eligible but did not receive a letter, you may visit The Independent Foreclosure Review Website for more information about the review process. The reviews are completely free for all eligible borrowers. You have until April 30 to request a review.

Related articles

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Debt Relief Window Closing Soon

A tax relief provision enacted by Congress to help financially strapped homeowners will soon be expiring. The 2007 law allows taxpayers to exclude from income the amount of debt that is forgiven or canceled and will expire Dec. 31 of this year.

The Chicago Tribune explains:

Under the tax code, borrowed money need not be reported as income because you have an obligation to repay. But if the lender subsequently cancels what you owe, the IRS requires that you report that debt as income because the duty to repay it no longer exists.

For example, if you owe $250,000 and your lender forgives $50,000 of that debt in a $200,000 refinancing, that $50,000 is considered income. If your combined federal and state marginal tax rate is 36 percent, you would owe $18,000 in taxes.

However, under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers are allowed to exclude from income the discharge of debt on their principal residence — at least until 2013.

So when your lender agrees to a short sale, there is no tax on the difference between the selling price and the amount you owe. When your lender forecloses, there is no tax on the canceled debt. Even when you refinance at a lower loan balance, there is no tax on the difference between what you owed on the old loan and what you now owe on the new one.

However, with the upcoming expiration of the Act, all residential mortgage debt relief that takes place on or after Jan. 1, 2013, will once again be considered taxable income.

Since the average time it takes to process a foreclosure – from the first missed payment to the final foreclosure auction – is about 674 days, as reported by PS Applied Analytics, some experts are sayin the tax absolution window may already be closed for foreclosures.

Short sales and refinancing are also long, drawn-out processes that can take anywhere from two to ten months which means that if finding debt relief was on your list of resolutions, this is one to begin working on sooner, rather than later.

Consult an experienced real estate attorney to determine your best and quickest options for debt relief. We also suggest speaking with a tax professional who can help you determine how your debt relief will affect your taxes.

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White House signals more aggressive stance to protect homeowners

Many experts see the biggest obstacle to the economic recovery is the mired housing market, which is bound to become a significant issue in the 2012 campaign season. As such, President Obama has signaled that it will take a more aggressive role this year in protecting homeowners from foreclosure, an intention that to-date has fallen short.

Rep. Barney Frank (Mass.), ranking Democrat on the Financial Services Committee, which has jurisdiction over the mortgage giants Fannie Mae and Freddie Mac, want the administration to put more pressure on banks to do more to help troubled homeowners refinance mortgages.

According to TheHill.com, putting more pressure on the banks to help troubled homeowners refinance has emerged as the most likely option, given the extreme difficulty of persuading the GOP-controlled House to set aside more money to avert foreclosures.

In July, the President acknowledged the administration’s efforts have fallen short of expectations to-date but made asserted that they will continue to search for additional ways to pressure the banks.

“We’re going back to the drawing board, talking to banks, try to put some pressure on them to work with people who have mortgages to see if we can make further adjustments, modify loans more quickly, and also see if there may be circumstances where reducing principal is appropriate,” he stated.

White House spokeswoman Amy Brundage further states:

“The President will continue to expand on these efforts and look at new ways to help homeowners, just as he has over the past few months with new programs to help underwater homeowners and expanding forbearance so more unemployed homeowners can stay in their homes,” she said.

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