Foreclosure Settlement Finalized, Now What?

April 11, 2012 Leave a comment

The $26 billion foreclosure settlement between the nation’s five largest banks and attorneys general from 49 states and the District of Columbia was finally finalized by a federal judge on Thursday.

The settlement aims to make it possible for roughly two million borrowers to see a significant reduction in their mortgage payments with principal reductions for underwater borrowers, refinancing on some mortgages to lower interest rates and compensation to those who lost their homes due to improper foreclosure practices.

CNNMoney.com has a complete list of provisions the banks agreed to and has outlined what it means to you, the homeowner.

As reported by CNNMoney.com, the main provisions include:

  • The banks and servicers have committed at least $17 billion to reduce principal for borrowers who 1) owe far more than their homes are worth 2) are behind on payments. The amount of principal reduction will average about $20,000 per borrower in the cases of four of the banks. The Bank of America reductions will be even steeper, averaging $100,000 or more, according to spokesman Rick Simon.
  • Another $3 billion or more will go toward refinancing mortgages for borrowers who are current on their payments. This will enable them to take advantage of the historically low interest rates that are currently available.
  • The banks will pay $5 billion to the states and the federal government, the only hard money involved in the deal. Out of that fund will come payments of $1,500 to $2,000 to homeowners who lost their homes to foreclosure. Other funds will be paid to legal aid and homeowner advocacy organizations to help individuals facing foreclosure or experiencing servicer abuses.
  • Another $1 billion will be paid directly by Bank of America to the Federal Housing Administration to settle charges that its subsidiary, Countrywide Financial, defrauded the housing agency.
  • The exact amount of the payments will depend on how many people participate in this part of the settlement. They will share equally in a pool of $1.5 billion. The U.S. Department of Housing and Urban Development expects about 750,000 former homeowners to take part.
  • In addition, the banks agreed to eliminate robo-signing altogether and to use proper and legal procedures when putting homeowners through the foreclosure process. They also agreed to end servicer abuses, like harassing delinquent borrowers for payments, and to include principal reductions more often in their mortgage modifications programs.

Which banks are participating?

Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial are taking part in the settlement.

Loans owned or backed by Fannie Mae and Freddie Mac are not part of the deal nor are loans insured by the Federal Housing Administration eligible.

If I take the money, what rights do I give up?

Individual borrowers do not give up any right to sue.

As part of this deal, state attorneys general gave up the right to sue the mortgage servicers for foreclosure abuses arising out of the robo-signing scandal. However, they reserve the right to sue — or press charges for criminal behavior — if they uncover improper acts when the loans were originated or when they were securitized.

Would I have to pay taxes on the principal reductions or the pay-outs?

If the principal is reduced in 2012, it will not be subject to income tax.

That’s because the Mortgage Debt Relief Act of 2007 allows taxpayers to exclude income from the discharge of debt on their principal residence. The act is scheduled to expire at the end of this year, however.

So if the act is not extended and the principal reduction occurs in 2013, borrowers may be on the hook to pay taxes on the settlement amount.

It’s not clear whether you would have to pay taxes on the $1,500 to $2,000 payout. The IRS declined to comment on the question.

Check out further details about the settlement at CNNMoney.com

California Foreclosures Decrease

April 6, 2012 1 comment

CoreLogic reports that California had the third biggest decrease among U.S. states in the number of homes at some stage in the foreclosure process, according to the Orange County Register.

The report also states that in February, 2.4 percent of the California homeowners with a mortgage faced the possibility of foreclosure – which equals about 160,000 households.

The Orange County Register reports that CoreLogic’s February numbers showed:

  • 6.7 percent of the state’s mortgaged homes, or about 458,000 households, were 90 days or more late on their house payments. That’s down from 9 percent in February of last year.
  • Banks seized 154,212 homes through foreclosure in the 12 months ending in February.
  • Nationwide, banks seized 3.4 million homes through foreclosure during the past 3 ½ years – more than 860,000 of them in the past year.
  • An additional 1.4 million U.S. homes, or 3.4 percent of all homes with a mortgage, were in the foreclosure process.
  • That’s down from 3.6 percent in February of last year, when 1.5 million U.S. households were in the foreclosure process.

Foreclosures still down in February – The Calm before the storm

April 5, 2012 1 comment

According to Lender Processing Services, the number of newly initiated foreclosures fell in February from January and from one year ago by around 15%. In fact, this marks the 11th straight month in which the level of foreclosure “starts” has fallen, month over month. Is this a sign of recovery?

Not likely, according to some analysts who say that banks are likely to jumpstart their foreclosures again once the $25 billion Attorney’s General settlement is finalized. However, The Wall Street Journal reports that the settlement could delay the inevitable uptick in foreclosure activity because banks still have a laundry list of requirements in the settlement.

According to the Wall Street Journal:

“Banks started the foreclosure process on 172,500 loans in February, which is the third lowest level of the past four years. Only November and December of 2011 saw lower levels of foreclosure starts.

Tuesday’s report from LPS shows that mortgage delinquencies fell to 7.6% in February, the lowest level since August 2008. Delinquencies tend to fall at the beginning of the year. Still, about 4.1% of all loans were in the foreclosure process, near the highest levels of the crisis.”

CNBC.com reports however that if the sudden stall in foreclosures is prolonged, it could lead to an overall drop in home sales, given that foreclosures are such a large share of the market. According to the National Association of Realtors, distressed sales, which include foreclosures and short sales, now make up just over one third of all existing home sales nationally, and more than half of all sales in California and other states hardest hit by the housing crash.

Morgan Stanley Fined for Robo-Signing

Morgan Stanley has been ordered by the Fed to review thousands of foreclosures conducted by its mortgage-servicing unit and reimburse homeowners who were improperly forced out of their homes. It was announced on Tuesday that the Fed plans to fine the fine Morgan Stanley over “a pattern of misconduct and negligence” in how the investment bank handles foreclosures.

According to the Wall Street Journal, the order requires Morgan Stanley to hire an independent consultant to the review foreclosures handled by Saxon Mortgage Services, the investment bank’s mortgage-servicing unit which it sold earlier this year, with a focus on foreclosures conducted between 2009 and 2010. The Wall Street Journal reports that “Saxon was the nation’s 34th-largest loan servicer, collecting payments on more than 225,000 home loans. It processed more than 60,000 foreclosures in 2009 and 2010.”

While Morgan Stanley is now part of a larger pool of lenders who have been ordered to conduct independent reviews of their foreclosure practices, this is one of the largest enforcement actions by the Fed.

Housing Recovery Back to Normal by Late 2015

March 30, 2012 Leave a comment

New data from the real estate website Trulia suggests that the housing market is at about 33 percent or one-third of the way back to “normal”.

In a recent guest blog post on Forbes.com, Trulia examined three key monthly indicators of housing recovery: new construction starts (Census), existing-home sales (NAR), and the delinquency-plus-foreclosure rate (LPS). In their analysis, they checked the lowest numbers, then stacked them against the numbers before the bubble to get an idea of “normal”.

As reported on Forbes.com, here’s what they came up with for February:

  • Construction starts: 22% of the way back from their low in Apr 2009 toward their normal level.
  • Existing home sales: 47% of the way back from their low in Nov 2008 toward normal.
  • Delinquency + foreclosure rate: 32% of the way back from their high in Jan 2010 toward normal.

“To get to a single number that’s easy to remember and track over time, we just average these three percentages together. If all three indicators were at their worst, the barometer would be at 0%; if all were back to normal, the barometer would be at 100%.”

Based on their numbers, Trulia predicts that we’ll be back to “normal” by late 2015.

Check out the post and accompanying infographic.

BofA offers Mortgage to Lease Program

March 28, 2012 Leave a comment

In a new effort to help distressed homeowners, Bank of America has announced that it will be offering a Mortgage to Lease program that allows homeowners to stay as renters in their home.

The pilot program will launch in Arizona, Nevada and New York and will help up to 1,000 homeowners selected by the bank. If the program is successful, it may expand to other markets to help more at-risk homeowners in other states.

CNNMoney.com reports that homeowners cannot apply to be a part of the program. The bank will select homeowners that are more than 60 days delinquent on their home loans, have high loan balances in relation to their current property value, have no other liens on their property, and have an income level high enough to afford the rent.

According to CNNMoney.co, upon selection into the program, “the homeowner will transfer title to their property to Bank of America and have their outstanding mortgage debt forgiven. In exchange, they may lease their home for up to three years at or below the current market rental rate.”

The Mortgage Brokers Association estimates approximately 200,000 homeowners in Arizona, Nevada and New York who are 60 days delinquent on their loans but that includes all lenders, not just Bank of America, and it does not include homes in those states that are already in the foreclosure process.

Friday Foreclosure Story: Actor Sues to Fight Foreclosure

March 23, 2012 Leave a comment

Former CSI: Crime Scene Investigation star, Gary Dourdan, is suing his bank, alleging constructive fraud and seeking to avoid the foreclosure of his Los Angeles home after claiming bank representatives were slow in offering mortgage help, in violation of state law.

TMZ reports a familiar story to millions of homeowners, the actor was laid off from his gig on the national TV show in 2010 which made it difficult to pay the $5,000 per month payment on his $922,000 mortgage loan. Dourdan contacted his lender, Union Bank, for relief. After six months of dealing with the bank, Dourdan was finally granted a relief package.

However, Dourdan’s attorney alleges that by waiting so long, the bank “manipulated and caused [him] to fall further behind” in his payments and failed to then honor the forbearance agreement, especially through “negligent obfuscation” when it sent confusing mortgage statements out saying “Do not remit any payments.”

According to E! Online, Dourdan is seeking a court order to prevent the foreclosure sale of his property and is demanding compensatory and punitive damages as well as attorney’s fees and costs.