The deal announced Thursday to help 1.75 million victims of the
housing crisis represents the largest joint state-federal settlement in
history, one aimed at correcting some of the abuses in the mortgage
lending industry that have hurt former and current homeowners.
The
details of the settlement are complicated, though, and eligibility will
be determined on a case-by-case basis for consumers who fall into three
categories of former and existing mortgage borrowers.
The $25 billion agreement with the five largest mortgage servicers — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup
and Ally Financial (formerly GMAC) — is expected to provide $1.5
billion in cash payments to 750,000 former borrowers who lost their
homes to foreclosure and as much as $20 billion in other forms of
assistance to help homeowners stay in their properties. Altogether
Illinois is expected to receive $1.5 billion in various types of aid
that will benefit 60,000 consumers.
Here's a look at how the settlement will treat three groups of consumers:
Former borrowers who lost their home to foreclosure
What they'll get: $1,500 to $2,000 each.
Who
is eligible: Consumers whose mortgages were serviced by one of the five
participating banks and who lost those homes to foreclosure between
Jan. 1, 2008, and Dec. 31, 2011. Loans could have been held by Fannie Mae and Freddie Mac.
Who
is not eligible: A borrower who lost ownership by participating in a
short sale or deed-in-lieu agreement with their servicer.
What
will happen: A settlement administrator will send consumers a form to
fill out if they believe mistakes were made in the processing of a loan
modification application or during the foreclosure process. Those errors
can include lost paperwork or if a foreclosure action was undertaken
while a loan modification was being considered.
What consumers
should do: The banks have lists of people they think will qualify, but
the process of contacting them is expected to take several months. If a
borrower thinks they're eligible but have moved, they should supply
their former servicer with a current address.
Delinquent borrowers who are underwater
What
they'll get: Consideration for $10 billion of principal reductions on
first and second mortgages that will, in effect, modify their mortgages.
First mortgages will be written down to give homeowners some relief,
but they still will be underwater. Second-lien principal write-downs
also are possible.
Who is eligible: Homeowners who are either at
least 30 days behind on their mortgage payments or can prove they are at
imminent risk of default and have a mortgage held in one of the five
banks' own portfolios or by a private investor. Borrower must have a
mortgage of less than $417,000 in an owner-occupied home. Borrowers who
previously received a loan modification but defaulted on it may still be
eligible. Homeowners whose mortgages are not substantially underwater
(20 percent or less) aren't likely to be considered.
Who is not
eligible: Anyone with a mortgage owned by Fannie Mae and Freddie Mac or a
nonparticipating lender. Private investors still will be able to weigh
the benefits of principal reduction versus those of reclaiming the
property through foreclosure.
If you don't qualify: Servicers will
offer funds to help people transition out of their homes and waive
deficiency judgments on short sales.
What consumers should do: Call your servicer to find out what entity owns the loan.
Current borrowers who are underwater and unable to refinance
What
they'll get: Mortgage refinancings to a more attractive rate that will
be determined on a case-by-case basis, but not necessarily to the lowest
rates available. The pot for refinancing assistance nationally is $3
billion.
Who is eligible: Borrowers whose loans are owned by the
five banks and owe more on their homes than the value of the property,
and who are paying a mortgage interest rate in excess of 5.25 percent.
Who
is not eligible: A borrower who has been delinquent in payments in the
past 12 months, has had a bankruptcy or foreclosure in the past 24
months, who has had their mortgage modified in the past 24 months or has
a loan held by Fannie Mae or Freddie Mac.
What consumers should
do: Borrowers already earmarked as potentially eligible should expect to
receive letters from their servicers.
For more information, go to nationalforeclosuresettlement.com
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