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$25B Proposed Mortgage Settlement Breakdown

January 31, 2012 2 comments

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.

Harris Holds Out For Tougher Terms

January 30, 2012 1 comment

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.”

Friday Foreclosure Stories

January 27, 2012 Leave a comment

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

Fixing the Housing Market: The Principal of the Matter

January 26, 2012 3 comments

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.

December home sales improve

January 25, 2012 Leave a comment

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.

The Election Season Turns Again to the Foreclosure Crisis

January 24, 2012 Leave a comment

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.

Nationwide Draft Settlement Does Little for Homeowners

January 23, 2012 2 comments

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.