Are you one of the millions of Americans who is struggling with mortgage payments or who lost their home to foreclosure in the last three years? If so, you may get some financial help from the $25 billion foreclosure deal announced yesterday by the U.S. Justice Department and 49 state attorneys general. The settlement, which results from the widespread use of illegal tactics throughout the industry, will require the five largest mortgage servicers (Bank of America, JPMorgan, Wells Fargo, Citigroup, and Ally Financial) to each contribute several billion dollars to help homeowners who were hurt.
What does it mean for you?
The five banks listed above will contribute a total of $25 billion, and other banks might be added to the settlement later, which could bring the total to $40 billion or more. Are you eligible for it? Here’s a quick primer on who gets the money:
–> $1.5 billion for people who lost their home – This includes approximately 750,000 people who were foreclosed upon between 2008 and 2011, and whose foreclosure process included some instance of fraud or error by the lender. These people will get between $1,500 and $2,000 each.
How to know if this applies to you: If you qualify, you will be notified by the government of your right to file a claim. (Your notice and a claim form will arrive in the mail; however, you can also call the lender for more information)
–> $17 billion for people who are underwater - This money will go toward mortgage debt forgiveness, forbearance, and short sales to help homeowners who are struggling.
How to know if this applies to you: You will be contacted directly by one of the 5 mortgage servicers who are part of the deal. If you think you may qualify, you can call them using the phone numbers below:
- Ally/GMAC: 800-766-4622
- Bank of America: 877-488-7814
- Citi: 866-272-4749
- JPMorgan Chase: 866-372-6901
- Wells Fargo: 800-288-3212
–> $3 billion for refinancing with lower interest rates - To provide further assistance to homeowners, so as to prevent more foreclosures.
How to know if this applies to you: Again, you can wait to hear from your lender or give them a call at one of the phone numbers we just mentioned.
It’s important to note that the process of contacting homeowners will take time, so even if you are eligible it may be 6-9 months before you hear from the government or the lender. And the entire settlement will take up to 3 years to implement.
How will this affect everyone else?
Although the settlement has the potential to help two million or more people, the reality is that most homeowners will not be directly affected by it. However, it could have a nation-wide impact on home prices – and that can affect everyone.
Since foreclosures often bring down home values in a particular area, by reducing foreclosures this settlement should theoretically help to stabilize home values.
However, there’s an “X-factor” here: mortgage lenders had slowed their processing of foreclosures while the accusations of fraud were being investigated – and now that the settlement is complete, the backlog of foreclosures from the past few months will start being processed. That means foreclosures could increase in the near future.
Why did the foreclosure settlement happen?
For more than a year, law enforcement officials have been investigating the widespread fraud that took place in the mortgage lending industry over the past few years. One of the most common illegal practices used by lenders was the rapid-fire signing of foreclosure documents by people who were not authorized to sign – and who were often signing up to 4,000 documents per day in someone else’s name:
[Chris] Pendley showed us how he signed mortgage documents as “Linda Green.” He told us Docx employees had to sign at least 350 an hour. Pendley estimates that he alone did 4,000 a day.
Many homeowners across the nation were unfairly foreclosed upon due to these methods, and the settlement will not only take a small step to right those wrongs but may also help stabilize housing prices. While the settlement does not preclude future legal action against the lenders, it does provide some restitution to those who lost their homes or who are under water on their mortgage.
Ultimately, after the months of lead-up to this settlement was it the best outcome for consumers? The answer is both “Yes,” and – unfortunately – “No.” While there’s no doubt the deal will help many homeowners tremendously, the long-term impact of the settlement is less clear. Some experts have already said the settlement was too small in scope and that it does not sufficiently change the culture of the mortgage lending industry to ensure this type of abuse will not happen again. An article published by the HuffingtonPost laid out 12 reasons to “hate” the deal, including this one:
1. We’ve now set a price for forgeries and fabricating documents. It’s $2000 per loan. This is a rounding error compared to the chain of title problem these systematic practices were designed to circumvent. The cost is also trivial in comparison to the average loan, which is roughly $180k, so the settlement represents about 1% of loan balances… It’s a great deal for the banks because no one at any of the servicers is going to jail for forgery and the banks have set the upper bound of the cost of riding roughshod over 300 years of real estate law.
Let’s hope, that despite these valid points the banks do in fact reform their practices – in fact, we must do more than hope, we must expect and demand a higher level of accountability from these institutions than what they showed over the past few years.
Perhaps the only really good thing that can come from the mortgage crisis in the end is that we learn something from it. As consumers, let’s remember the lesson: what seems straightforward (taking out a mortgage) often isn’t – so we have to be fiercely vigilant, especially when our homes and our life savings are at stake.
And if you need help organizing your mortgage and other debt payments all together in one place, give our free online tool a try:
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