Home > Avid Law Center > How the $25B Mortgage Settlement Affects Californians

How the $25B Mortgage Settlement Affects Californians

The federal government, 49 attorneys general including California’s Kamala Harris, and five the nation’s largest banks announced last week the approval of the $25 billion settlement that’s aimed at helping distressed homeowners and keeping them in their homes.

While much ado has been made around this much needed aid, homeowners everywhere are asking how this will benefit them and Californians specifically are wondering how they can cash in on their portion of the $18 billion granted to California.

First of all, not all borrowers will be helped – The settlement only covers loans owned and/or serviced by Bank of America, Wells Fargo, JPMorgan Chase, Citibank and Ally Financial. So anyone with a Fannie or Freddie loan is left out – which is equal to about 30 million mortgage loans.

The main provision in the settlement provides principal reductions on loans for people who are underwater and are behind or “almost behind” on their mortgage payments. According to the San Francisco Chronicle, “About $8.9 billion – or almost half of the $18 billion in borrower benefits California expects to receive – will reduce principal for an estimated 250,000 borrowers. That’s about $35,000 per homeowner.”

Homeowners who prove they have an economic hardship that makes it impossible for them to continue paying their mortgage are eligible for a principal reduction. The tricky part: This is only true for loans owned by the big five banks. Loans that are serviced by the big five but owned by investors may be eligible, but the investors have the final say and need to agree to the principal reduction. And again, loans owned or backed by Fannie Mae, Freddie Mac, the Federal Housing Administration or Veterans Administration are not eligible.

Another provision in the settlement includes restitution payments for those whose loan was serviced by one of the five banks, regardless of who owned it, and were foreclosed on between Jan. 1, 2008 and Dec. 31, 2011. Those homeowners are automatically eligible for a one-time payment estimated at $1,500 to $2,000. The San Francisco Chronicle reports that “In California, about 140,000 people could share $279 million in payments. Nationwide, about 750,000 are expected to share $1.5 billion. These payments are supposed to punish servicers for robo-signing and other shoddy foreclosure practices.”

While homeowners will not have to prove they were victim of such practices to receive a payment, if they can prove they were wrongfully foreclosed on due to these wrongful doings, they can also pursue damages individually or in a class action – and if they can only expect a maximum of $2,000, it’s a likely course of action for many.

The rest of California’s settlement will be divided as follows, as reported in the San Francisco Chronicle:

  • California expects only $849 million – or 4.7 percent of the total benefits – for refinancing.
  • California anticipates that banks will devote $3.1 billion to help 23,000 homeowners do short sales.
  • California expects banks to put $3.5 billion toward “unpaid balances” on home loans, not necessarily deficiency judgments which are uncommon in California.

For more information, see oag.ca.gov or www.nationalmortgagesettlement.com.

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