News
What Mortgage Settlement Will and Wont Do for Homeowners
Most money will go to those who are “underwater” and those with Freddie, Fannie
contracts don’t qualify
Derek Kravitz
AP Real Estate Writer
WASHINGTON (AP) — The mortgage settlement
that government officials announced Thursday is intend-
ed to help victims of foreclosure abuses that followed the
housing bust.
Many companies that process foreclosures failed to
verify documents. Some employees signed papers they
hadn’t read. Or they used fake signatures to speed fore-
closures - a step called “robo-signing.” As a result, some
homes were seized improperly.
Here’s a look at what the settlement will and won’t do
for current and former homeowners:
Q: Who stands to benefit?
A: Most of the money would go to some homeowners
who are “underwater.” That means they owe more on
their loan than their home is worth. Many are struggling
to make their payments and are at risk of foreclosure. Yet
because they have no home equity, they’ve been unable
to refinance into a lower-rate loan. For about 1 million
underwater homeowners, their loan principal will be
reduced by an average of $20,000. But more than 90 per-
cent of underwater homeowners won’t be helped. Some,
however, might be eligible to refinance at a rate of 5.25
percent.
Q: How might the settlement help people avoid fore-
closures?
A: It requires that banks make foreclosure a last resort.
And it bars lenders from foreclosing on a homeowner
who is being considered for a loan modification. If this
worked effectively, “it would help borrowers, lenders,
the entire country,” said Ray Brescia, a visiting law pro-
fessor at , who has tracked the housing crisis. But he
cautioned that it would help only if diligently enforced.
Q: Who’s eligible for relief?
A: Those whose loans are owned or guaranteed by pri-
vate lenders. Roughly half the mortgages in the - about
30 million loans - are owned by private lenders. The
other half are owned by government-controlled mort-
gage giants Fannie Mae and Freddie Mac. Homeowners
with these mortgages aren’t eligible.
Q: How will the deal help those who unfairly lost their
home to foreclosure due to robo-signing?
A: Roughly 750,000 households - about half who are
eligible for aid under the deal - could get checks for
$2,000 if they lost their homes between 2008 and 2011.
Critics note that that’s not much relief for people who
lost their homes when they were improperly foreclosed
upon.
Q: Will homeowners and states still be able to take
action against lenders on their own?
A: Homeowners who get checks will not lose their
rights to sue lenders in court. And states will still be able
to criminally charge lenders and servicers who engaged
in deceptive or illegal foreclosure practices. , for exam-
ple, charged a Georgia-based mortgage servicer and its
founder last week on charges of falsifying 68 notarized
deeds on behalf of mortgage lenders.
Q: Could the settlement help repair the troubled hous-
ing market?
A: Possibly, but only in the long run. banks will like-
ly process foreclosures faster now that a deal has been
finalized. Foreclosure filings have slowed because of
backlogged courts, judges skeptical of foreclosure docu-
ments and lenders awaiting a final government-backed
deal. “If it helps 1 million homeowners over the next few
years, it should help housing prices stabilize and start ris-
ing again,” said Mark Zandi, economist at Moody’s
Analytics. “And this should unclog the foreclosure
process.”
Q: Is the settlement fair?
A: The deal forces the five largest mortgage lenders to
reduce loans or send checks to nearly 2 million American
households. But considering the range and depth of the
housing crisis, the payout amounts to small change for
the banks. And only a fraction of people who likely need
help will get it.
Q: Who will enforce the terms of the deal?
A: ‘s banking commissioner, Joseph A. Smith Jr., will
monitor enforcement. Lenders that violate the deal could
face $1 million penalties per violation and up to $5 mil-
lion for repeat violators. The banks will also have to pay
fines to the federal government if they don’t use the
funds to help mortgage holders.
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February 15, 2012 The Portland Skanner Page 9