Fed Government Announces $25 Billion Mortgage Relief Plan
Here is your “Boiled Down” overview of the plan.
On Thursday, the federal government announced a $25 billion dollar settlement it has reached with the nation’s largest banks that is designed to provide relief for homeowners who are struggling to pay their mortgages. The settlement arises in connection with claims that banks “robo-signed” thousands of foreclosure documents without properly reviewing the paperwork or confirming the accuracy of those documents. As a result of those claims, the Attorneys General in many states had initiated legal action against the banks and 49 states joined in the settlement (Oklahoma is the only state that declined to join the settlement). The settlement which has been reached so far only applies to the five banks that signed it and does not apply to government-owned mortgage giants Fannie Mae and Freddie Mac. The banks that joined in the settlement are Ally/GMAC, Bank of America, Citi, JP Morgan Chase and Wells Fargo.
The settlement is designed to provide assistance for three classes of borrowers:
- Homeowners needing loan modifications now – The lenders and their servicers are required to provide $17 billion in principal reduction and other forms of loan modification relief on first and second mortgages to eligible homeowners
- Borrowers who are current, but whose homes are “underwater” – Eligible borrowers will be able to refinance at today’s low interest rates even though their loan amounts exceed the market value of their homes
- Borrowers who lost their homes to foreclosure – Borrowers who were foreclosed on between January 1, 2008 and December 31, 2011 will be eligible to receive payments of up to approximately $2000 without any necessity to prove financial harm and without having to release private claims against the lenders or servicers who conducted the foreclosures
This settlement agreement will be performed over a three year period and due to the complexity of the settlement borrowers will not immediately know if they are eligible for relief. Over the next 30-60 days settlement negotiators will be selecting an administrator to handle the logistics of the settlement and monitor compliance.