Today, both Federal and State officials announced a landmark $26-billion agreement with the nation's five biggest mortgage servicers, Bank of America, Citi, JPMorgan Chase, Wells Fargo, and Ally/GMAC, in an effort to settle the many investigations involving foreclosure abuses as well as using this as a means to stabilize the housing market.
Loans owned by government-owned mortgage giants Freddie Mac and Fannie Mae will not be affected.
This settlement deal will give $17 billion in relief to current homeowners which will allow them to reduce the amount of principal that they owe on their mortgages.
Furthermore, an additional $5 billion will be paid in cash to California and 40 other states to make amends for foreclosure paperwork issues and the inappropriateness taken by the servicers in the foreclosure process.
Officials estimate that hundreds of thousands of homeowners will most likely get between $1,700 and $2,000 each as part of the deal and about $1.5 billion of the $5 billion will be given directly to people whose homes were foreclosed upon between 2008 and 2011.
Also, if you are currently underwater on your home or you are struggling to pay your mortgage, you may be asking yourself if you can expect some relief under this settlement, well, you may not know for a while.
The payment breakdown details can been seen on the new "National Mortgage Settlement" website and shows that the payments and other relief monies will be distributed over a three-year period and at this point many borrowers will not know right away if they are eligible.
According to the website (http://www.nationalmortgagesettlement.com/help) there are three main categories of borrowers who will be helped by this settlement:
- Homeowners needing loan modifications now, including first and second lien principal reduction. The servicers are required to work off up to $17 billion in principal reduction and other forms of loan modification relief nationwide. State attorneys general anticipate the settlement's requirement for principal reduction will show other lenders that principal reduction is one effective tool in combating foreclosure and that it will not lead to widespread defaults by borrowers who really can afford to pay.
- Borrowers who are current, but underwater. Borrowers will be able to refinance at today's historically low interest rates. Servicers will have to provide up to $3 billion in refinancing relief nationwide.
- Borrowers who lost their homes to foreclosure with no requirement to prove financial harm and without having to release private claims against the servicers or the right to participate in the OCC review process. $1.5 billion will be distributed nationwide to some 750,000 borrowers.
Within the next one or two months, an administrator will be picked to oversee the settlement and over the next 6 to 9 months eligible homeowners will be decided upon and notified by mail.
Why is this so important? With this settlement in place, the foreclosure crisis may be better managed and as a result it could stem the influx of more foreclosures coming into the housing market and further hindering its recovery. Also, with foreclosures being somewhat controlled, there will be less supply which will lead to more demand and an increase in home prices.