Landmark Mortgage Industry Settlement0
Thursday, February 9, state and federal officials announced a landmark settlement in the mortgage industry. The settlement, worth more than $25 billion, is with five of the largest national banks and is in regards to flawed and even fraudulent foreclosure policies. According to the settlement, some mortgage servicing companies and lenders have not been properly interacting with struggling homeowners. It is considered a landmark deal because it is the largest settlement between the government and an industry in over 10 years.
The settlement is not quite set in stone yet. First it needs to be filed in a federal court and approved by a judge. Once this happens, banks will deposit money into a government-handled trust account. The funds will be distributed to qualified homeowners as the government outlines.
Currently, all states but Oklahoma have signed the agreement. This is good mortgage industry news for homeowners who are struggling, including those who lost their homes. Under the settlement, around 750,000 borrowers who faced foreclosure since 2008 will receive payouts of around $2,000 from the settlement.
The five banks that are participating in the settlement include Ally Financial, Citigroup, Bank of America, Wells Fargo, and J.P. Morgan Chase. The reason these mortgage servicing companies are participating in the settlement is the fact that they were caught with flawed and fraudulent foreclosure documents in late 2010. Because of this, some loans were sold to investors without giving the homeowners sufficient time to make things right, and as a result the banks could not verify the ownership of these mortgages. This sent the industry into turmoil, and thus sparked the cause of the settlement.
More Banks Could Be Added
Currently, the officials in charge of this settlement are in negotiations with nine more mortgage servicing companies. This would make the total number of participating banks 14, which may increase the amount of the payout to qualified former homeowners.
Some industry insiders point to the current difficulties in the housing market, stating that a $25 billion settlement is not sufficient to fix the problem. While it may not be sufficient, it is better than nothing, and now the banks that started the problem are being held accountable.
The monetary settlement is not the only part of this agreement. Protections are being put in place to ensure that future fraud and misleading does not take place. This includes requiring firms to give borrowers one point of contact with their lender, instead of having them talk to many different employees.
Also, some new helps for troubled borrowers are going to be implemented. Lenders will have to rework the way they interact with these borrowers. For example, mortgage servicing companies will not be allowed to start foreclosure while also negotiating mortgage modifications with the borrower.
In general, while the new agreement may not do “enough” in the eyes of some, it is doing something about a growing problem, and it is doing something fairly aggressively. This is good news for struggling homeowners or those who have been evicted from their homes.