Foreclosure Settlement Finalized, Now What?

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

Related articles

• $25B Proposed Mortgage Settlement Breakdown (avidlawblog.wordpress.com)
• How the $25B Mortgage Settlement Affects Californians (avidlawblog.wordpress.com)
• Americans brace for impending wave of foreclosures (business.financialpost.com)
• What the foreclosure settlement means for you (money.cnn.com)

Mortgage Settlement Filed in Court This Week Still Leaves Homeowners Outraged

The details of the multi-billion dollar mortgage settlement between 49 state attorneys general and the nation’s five largest banks were filed this week in court. However millions of homeowners will still be left without aid.

Proponents of the settlement estimate that roughly 1 million underwater homeowners will receive aid in the form of principal reductions and another 750,000 homeowners will be able to refinance their loans to lower interest rates. CoreLogic, however, states that this is just a fraction of the 11 million homeowners who are currently underwater.

CNNMoney.com reports:

“Principal reductions will also only apply to certain borrowers who have mortgages still held by the five major lenders: Bank of America, CitiBank, Wells Fargo, J.P. Morgan Chase and Ally Financial.

Borrowers who have a mortgage held by Fannie Mae or Freddie Mac — roughly half the market — are out of luck. Loans insured by the Federal Housing Administration are also ineligible.”

Unfortunately for many homeowners most loans are not retained by the original lenders. So if a borrower enters into a mortgage agreement with a bank, their loans are often sold to Fannie or Freddie and borrowers aren’t given a choice when their loans are sold.

Distressed homeowners throughout the country are outraged at the inequality the settlement offers. For the homeowners who bought responsibly and made their payments faithfully, the unfairness comes in the fact that their tax dollars are paying for government-funded programs to prevent foreclosures while irresponsible borrowers accrue the benefits like the ones offered in the settlement.

Additionally, some borrowers may qualify for much larger reductions than others, as well.

CNNMoney.com states:

“Bank of America, for example, said it will slash mortgage balances by an average of $100,000 or more for roughly 200,000 homeowners. The goal, according to BofA, is to reduce the amount owed on the home to 100% match the current market value. Meanwhile, the other four major mortgage lenders, CitiBank, Wells Fargo, JPMorgan Chase and Ally Financial, are expected to reduce qualified borrowers’ principal to between 115% and 125% of the value of their homes — an amount that the Department of Housing and Urban Development said should average about $20,000.”

Related articles

• Rage grows over mortgage deal (money.cnn.com)
• How the $25B Mortgage Settlement Affects Californians (avidlawblog.wordpress.com)
• Banks, Meet the New Foreclosure Monitor (blogs.wsj.com)

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.

Related articles

• $25B Proposed Mortgage Settlement Breakdown (avidlawblog.wordpress.com)
• Californians to get up to $18 billion in mortgage relief in settlement with nation’s biggest lenders (mercurynews.com)
• What the mortgage settlement means to you – msnbc.com (blog) (subscription) (bottomline.msnbc.msn.com)
• How the mortgage settlement deal works (oklahomarealestate.wordpress.com)

First major state lawsuit filed over ‘robo-signing’

Massachusetts has filed the first major lawsuit over “robo-signing” foreclosure processing.

Massachusetts Attorney General Martha Coakley filed suit against Bank of America, JP Morgan Chase, Citi, Ally Financial and Wells Fargo, as well as the MERS corp (Mortgage Electronic Registration System, Inc.), citing “unlawful and illegal foreclosures against homeowners in Massachusetts.”

USA Today reports that the Attorney General alleges these five entities “engaged in unfair and deceptive trade practices in violation of Massachusetts’ law by: Pervasive use of fraudulent documentation in the foreclosure process, including so-called “robo-signing”, foreclosing without holding the actual mortgage, corrupting Massachusetts land recording system through the use of MERS, and failing to uphold loan modification promises to Massachusetts homeowners.”

Through this lawsuit, she hopes to force accountability upon the banks and to provide homeowners with “real and enforceable relief…for the harm that the misconduct has caused.”

Like California, Massachusetts is a non-judicial state in terms of foreclosures unlike many other states that require the bank to go to court and get a judgment before they can file for a foreclosure. Many homeowners don’t realize that they have rights and options can get the advice of an attorney before agreeing to any foreclosure settlement.  The banks, aware that most homeowners do not seek legal advice fully take advantage of this predicament. This lawsuit will seek to work in favor of what is best for the people of Massachusetts, giving homeowners a stronger voice and access to their rights.

While Attorney General Coakley has joined others in a state and federal government negotiation to reach a settlement that could cost those banks $20 billion, Coakley, criticized the banks stating, “I believe that the banks have failed to offer meaningful and enforceable relief to homeowners for their deceptive practices.”

This new lawsuit could be just the beginning of a slew of state suits against the banks if no multi-state agreement is reached.