Will you qualify for a piece of the $26 billion settlement announced this week to resolve claims against the nation's five largest mortgage lenders? Here are some of the details:
Why did this happen?
The settlement resolves claims by the federal and state governments that the five lenders engaged in improper foreclosure practices, most notably by rubber-stamping foreclosure claims during the robo-signing scandal that emerged in 2010. There were also accusations that lenders foreclosed on homeowners who were in the process of being evaluated for loan modifications.
The settlement resolves potential federal and state claims against the lenders, but does not prevent individual borrowers from seeking damages, even if they receive a benefit from the settlement.
Who can qualify?
To share in the financial benefits of the settlement, you need to have a mortgage that is held by one of the five major mortgage lenders who participated - Bank of America, Wells Fargo, JP Morgan Chase, Citibank and Ally Financial (formerly GMAC). You can also be a former homeowner who had a mortgage with any of those five lenders and lost your home to foreclosure.
Residents of Oklahoma are excluded from the settlement ment because the state's attorney general reached a separate agreement with the five lenders.
Even if you have or had a mortgage with a different lender than the five major ones, there's still a chance you could benefit. As many as nine smaller lenders might still sign on to the agreement, meaning their borrowers would be eligible as well.
No Fannie Mae, Freddie Mac, FHA
Unfortunately, homeowners whose mortgages are backed by Fannie Mae or Freddie Mac are not eligible to receive financial benefits from the settlement. FHA mortgages are similarly excluded. This greatly diminishes the potential impact of the settlement, because together the three account for the majority of U.S. residential mortgages.
You should already know if you have an FHA mortgage or not. Fannie Mae and Freddie Mac both offer a simple tool on their web sites that will look up whether your mortgage is backed by them.
What will it do?
- Reduced mortgage principal and interest rates
About $10 billion of the settlement will be used to lighten the debt load for borrowers who are underwater on their mortgages by at least 20 percent of the property value and behind on their mortgage payments. The property must be the borrower's primary residence with a loan balance of less than $417,000.
Principal reductions will be available on both primary and secondary mortgage liens, but will not completely bring a borrower back to positive equity - just reduce the degree to which they owe more than their home is worth. The principal reductions will be combined with loan modifications to help make borrower's mortgages more affordable.
- Refinancing underwater mortgages
About $3 billion will go toward enabling homeowners who are underwater on their mortgages to refinance their home loans at lower interest rates. Borrowers in this group must be current on their mortgage payments to qualify. This will likely be limited to homeowners whose current mortgage rates are at least 5.25 percent or above.
- Mortgage forbearance
Another $7 billion will go to other types of assistance, including allowing unemployed borrowers to temporarily forgo payments toward mortgage principal (interest payments would likely still be required). Some funding will also be used to facilitate short sales for homeowners who otherwise would likely lose their homes to foreclosure.
- Foreclosure compensation
Some 750,000 borrowers who lost their homes to foreclosure between Jan. 1, 2008 and Dec 31, 2011 will receive $1,500-$2,000 apiece in compensatory payments, for a total of $1.5 billion.
Finally, about $4.5 billion from the settlement will be used to fund housing counselors and other mortgage borrower assistance programs, as well as to reimburse public monies spent as a result of the lenders' misconduct.
Learning if you are eligible
State and federal officials and the lenders themselves will work together to identify qualifying borrowers and will begin contacting them over the next six to nine months. You may contact your lender directly to inquire about your eligibility, but they may not be able to give any definitive answers at this point. Lenders get additional credit for settlement funds used over the next 12 months, so they have an incentive to act quickly. All settlement funds must be accounted for within three years.