The Portland Condo Blog

Banks make $25 billion mortgage settlement

Foreclosure sign

Highlights
  • Under the settlement,  servicers will provide cash for foreclosure victims.
  • Individual homeowners  should receive on average $1,500 to $2,000.
  • The biggest long-term  effect may be new mortgage servicing rules.
 Despite continued distress in the housing market and gridlock on Capitol  Hill, it looks like struggling homeowners will be getting a little more help in  the months ahead.

Today, Attorney General Eric Holder and Secretary of Housing and Urban  Development Shaun Donovan, along with most state attorneys general, announced a  $25 billion legal settlement of investigations into improper foreclosures,  mortgage modification misconduct and other abuses against U.S. homeowners by  mortgage servicers. The lone holdout was the state of Oklahoma, which did not  join the other 49 states included in the settlement.

In exchange for resolving those cases, the nation’s top five mortgage  servicers — JP Morgan Chase, Bank of America, Citibank, Ally Financial and  Wells Fargo, which service about two-thirds of U.S. residential mortgages —  agreed to significant concessions.

Under the settlement, servicers will provide cash for victims, fund billions  of dollars in mortgage write-downs for underwater homeowners and agree to new  guidelines for mortgage servicing designed to prevent future abuses.

Restitution for victims

About 750,000 homeowners affected by bank misconduct will receive  compensation from a $1.5 billion fund created by the deal. Individual homeowners  should receive on average $1,500 to $2,000, says Ted Gayer, a senior fellow with  the Brookings Institution.

While that may not seem like a lot for people who lost their homes because of  bank misconduct, homeowners are still free to try and recover more through the  court system. At a press conference today, Donovan stressed that the settlement  wouldn’t affect individual cases brought by homeowners.

Eligible borrowers who were foreclosed on between Jan. 1, 2008, and Dec. 31,  2011, will be notified of their right to file a compensation claim.

Fund for principal write-downs

The settlement establishes a fund of $20 billion to help struggling  homeowners, including $17 billion to reduce the mortgage balances of homeowners  who currently owe more than their houses are worth. Iowa Attorney General Tom  Miller, one of the architects of the settlement, says the fund may result in up  to $35 billion in reduced principal because officials overseeing the fund will  bargain with banks  to pay less than full value to reduce mortgage debt owed by distressed  homeowners.

Even so, if your mortgage is owned by Fannie Mae or Freddie Mac, you may be  out of luck. The funds won’t cover homeowners with mortgages held by these  entities.

“The big news here is principal reduction,” Gayer says. “But in the end, it’s  not going to end up being that substantial.”

Gayer says the final total of underwater equity written down will probably be  $17 billion to $30 billion, a fraction of the $200 billion in troubled  underwater equity in the U.S.

Officials hope the required principal reductions will provide a framework and  a push for future voluntary write-downs, but Gayer says that may be  unrealistic.

“It seems like (officials) are almost counting on this triggering a change of  behavior, which I’d be skeptical about,” Gayer says. “Banks could have always  done principal reductions before, but they haven’t for a number of  reasons.”

If you have questions about getting a mortgage in todays market, come visit the Portland condominium source, LuxuryCondosofPortland.com.

Want to begin touring some of Portland’s finest condos and lofts such as The Casey Portland, The Metropolitan or The Henry, give us a call today to set up a tour.

 

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