If you’re wondering when help will arrive for your underwater home, on February 9th, 2012, a giant step forward was taken on your behalf.
The Obama Administration announced a settlement with five of the largest banks, Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial, and attorneys general in all states with the exception of Oklahoma.
The $26 billion foreclosure settlement brings to a close the litigation surrounding the use of robo-signing in the foreclosure process and may provide much needed relief for many of the nation’s underwater homeowners.
In the Fall of 2010, reports started to emerge about the behind the scenes process used to foreclose properties that underwater homeowners either walked away from or due to financial situations, could no longer make payments.
If you have ever purchased or sold a home, you know that the process of transferring ownership is a complicated legal endeavor that has to be done exactly as state laws dictate. The person signing the documents has to have knowledge of what they’re signing and when the documents are signed, a notary is supposed to witness the signature. As part of documents being signed, some states require that the signer swear that they have knowledge of the foreclosure case.
It was later found out through depositions of reported robo-signers that not only had they not read the documents they were signing, they had no knowledge of the case and often, the notary was not a witness to the signature. Instead, they either pre- or post-notarized the documents without witnessing the signing.
This led to a large scale halt of foreclosures further hampering the real estate recovery as homes sat in legal limbo not able to be foreclosed or refinanced.
The February 9th settlement between the attorneys general and the five largest mortgage lenders finally brings the case to a close and within the settlement, there are some customer friendly provisions.
First, $17 billion of the funds will go towards principal reduction for up to 1 million homeowners. According to the New York Times, the average homeowner is underwater by more than $50,000, far more than a $17,000 average payout if the funds were distributed evenly. Because of this, the fund will likely not provide relief for the 1 million people but for those who receive reduction, this may allow the home to be sold or refinanced.
Next, up to 750,000 other homeowners may be eligible for refinancing. The settlement earmarked $3 billion that would make up for the losses that banks would face by refinancing these homeowners’ mortgages. Although no principal reduction would take place for these loans, refinancing at today’s record low rates could drastically reduce their payment.
Another $1.5 billion of the settlement will go towards providing relief for those who were victims of robo-signers. Those affected would receive up to a $2,000 one time payment that would not take away their right to sue the lenders if they chose to in the future.
The Impact of the Settlement
Although the deal was announced today, other lenders may join in the settlement raising the $26 billion settlement much higher providing relief for even more homeowners, but the Obama Administration was quick to say that this would not provide relief to all Americans.
Mortgages held by Fannie Mae and Freddie Mac will not receive any relief under this settlement leaving more than half of all mortgage holders in the same positions they were in before the settlement was announced.
Still, housing experts believe that even if more foreclosures take place as a result of settling the lawsuit, that may be good for the market. As long as homes are vacant and homeowners can’t get out from under their home, there is little hope for a recovery.
This settlement provides the first steps in removing the gridlock present in the real estate market.
What do you think of the bank mortgage settlement?