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Robosigning deal may help

By Polyana da Costa · Bankrate.com
Friday, January 20, 2012
Posted: 3 pm ET

Federal and state regulators are close to reaching a settlement with some of the nation's largest lenders over their shady foreclosure practices.

What's in it for borrowers? About one million borrowers could receive mortgage relief in the form of loan principal reductions, according to reports citing U.S. Housing and Urban Development Secretary Shaun Donovan.

Donovan has long argued that principal reductions would help borrowers who owe more on their mortgages than their houses are worth.

In exchange for the write-downs, the lenders wouldn’t face government lawsuits over improper servicing and foreclosures practices. The potential agreement comes after more than a year of investigations over robosigning, in which servicers hired workers to sign foreclosure documents en masse, attesting that the documents had been verified when they barely had been glanced at.

Attorneys general from 50 states have been involved in the investigation and settlement talks with the lenders. The settlement could be reached by the end of the month, according to reports.

But if you are an underwater borrower hoping for relief, don’t get too excited yet.

I'll believe in write-downs when I see lenders offering them. Even if the banks do agree to loan reductions, they would only be able to write down loans in their portfolios. A large portion of these mortgages have already been packaged and sold to investors. The institution that originated your mortgage may still be the servicer of your loan, but it may not own it anymore.

What's your take on this potential settlement?

Follow me on Twitter @Polyanad

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2 Comments
Grant Stern
January 20, 2012 at 4:36 pm

The government's strategy of pursuing settlements for predatory lending practices from banks is appropriate, and beginning to finally pay dividends. The faster banks write down principal balances, the faster the real estate market will make a full recovery.