Since the $25 billion mortgage settlement with five of the nation's largest banks was announced, borrowers across the nation wonder if or when they will benefit from it.
"This historic settlement will provide immediate relief to homeowners, forcing banks to reduce the principal balance on many loans, refinance loans for underwater borrowers, and pay billions of dollars to states and consumers," says Housing and Urban Development Secretary Shaun Donovan.
Sounds good. But there is nothing "immediate" about this settlement.
It will take six to nine months to identify borrowers who are eligible to benefit from the settlement. And the five lenders that participated in the settlement -- JP Morgan Chase, Bank of America, Citibank, Ally Financial and Wells Fargo -- have up to three years to fulfill the agreement. That doesn't mean nothing will happen for three years. But it will be a long process before former homeowners start getting checks in the mail or borrowers receive refinance offers under this agreement.
Now, here is what borrowers may get within these three years:
- If you lost your home to foreclosure between Jan.1, 2008, and Dec. 31, 2011: You may receive about $2,000. The check won't magically appear in your mailbox. First, the settlement administrator will send claim forms to those who are eligible. It's not yet clear who will be eligible for compensation. Officials say borrowers who were "not properly offered loss mitigation or who were otherwise improperly foreclosed" will be eligible. About 750,000 people could receive checks.
- If you are current on your mortgage but owe more than what your house is worth, you may qualify for refinancing relief under the settlement: The settlement provides up to $3 billion to refinance underwater homes. To qualify, you would need to be current on payments and your mortgage must be owned by one of the five banks in the settlement. If your loan is owned by Fannie Mae or Freddie Mac you don’t qualify, even if one of these banks services your loan. And if your loan is owned by investors, it will depend on the agreement the servicer has with the investors. These lenders don't own most of the mortgages they service, which is why this agreement helps only a limited number of borrowers.
- If you can't afford your current mortgage payment but would be able to make payments on a smaller loan: You may be eligible to participate in the principal reduction program in this settlement, which provides $17 billion for foreclosure relief efforts such as short sales and write-downs. Again, loans owned by Fannie and Freddie don't qualify. According to the settlement announcement, "mortgage servicers have three years to reach loan modification targets and fulfill refinancing commitments. Servicers must reach 75 percent of their targets within the first two years."
I'm not sure how this is going to work. If you can't afford payments, how are you supposed to wait two years to have your loan modified? Maybe when the actual settlement documents are approved by the court and released to the public we'll have that answer. I hope.
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