Californians to Get Up to $18 Million in Mortgage Relief

Californians to Get Up to $18 Million in Mortgage Relief in Settlement With Nation’s Biggest Lenders  

A $25 billion multi-state agreement with major banks over a document signing scandal will bring struggling California homeowners badly needed help in the form of in principal reductions and other relief, California Attorney General Kamala Harris announced Thursday.

"California families will finally see substantial relief after experiencing so much pain from the mortgage crisis," Harris said in a statement. "Hundreds of thousands of homeowners will directly benefit from this."

But thousands more homeowners will still need help, Harris said, including those whose loans are held by two government sponsored mortgage giants, Fannie Mae and Freddie Mac, which control more than 60 percent of the mortgages issued during the housing bubble. The two companies have resisted principal reduction.

"I will continue to fight for principal reductions for the approximately 60 percent of California homeowners whose loans are owned by Fannie Mae and Freddie Mac," Attorney General Harris added.

The settlement, announced in Washington by the U.S. Housing and Urban Development Department and the Department of Justice, is for $25 billion. Harris' office said that California's portion of that is $12 billion, which is the amount banks will receive credit for, at a rate of 10 cents on the dollar. California homeowners will see actual mortgage relief of up to $18 billion, the attorney general's office said. Nationally, the potential relief is up to $40 billion.

Housing Secretary Saun Donovan said the banks have key reforms in the mortgage process that will give borrowers added protection.

"One of the most important ways this settlement helps homeowners is that it forces the banks to clean up their acts and fix the problems uncovered during our investigations," Donovan said.

Under the new servicing standards, banks must evaluate homeowners for loss mitigation options before foreclosing, which is to come as a "last resort," according to HUD.

Banks will be restricted from foreclosing while homeowners are being considered for loan modifications, and homeowners will have the right to appeal denials. A single point of contact will be created for borrowers inquiring about their loans.
The California Mortgage Bankers Association said the agreement "will hopefully end a period of uncertainty."

The agreement, concluding a year negotiations, penalizes five large lenders for robo-signing and servicing and foreclosure misconduct. The attorney general said it gives California:

- More than $12 billion in principal reductions or offers of short sales to about 250,000 California underwater homeowners or who are behind in their mortgage payments.

- $849 million for refinancing the loans of 28,000 homeowners who are current on their payments but underwater on their loans.

- $279 million for restitution to 140,000 California homeowners who were foreclosed upon between 2008 and December 31, 2011. This will be in checks estimated at $1,500 to $2,000 per former homeowner.

- $1.1 billion for payment forbearance and transition assistance to unemployed homeowners, and assistance to communities to repair neighborhoods blighted by 16,000 recent foreclosures.

- 3.5 billion in relief to 32,000 homeowners with unpaid balances when their homes are foreclosed.

- $430 million in costs, fees and penalty payments.

The agreement includes incentives for banks to reduce the principal mortgage balance of underwater homeowners in California's hardest-hit counties within the first year of the settlement.

Among the counties receiving reductions are Los Angeles: $3.92 billion; Riverside: $1.59 billion; San Bernardino: $1.13 billion; Sacramento: $820 million, and Stanislaus County: $368 million

The agreement is part of a national multi-state settlement with five banks -- Wells Fargo, Bank of America, JP Morgan Chase, Citigroup and Ally Financial.

Harris left the negotiations last September when California's share of the deal was only $4 billion, according to a statement released by her office. She returned to negotiations only recently. The larger deal added $6 billion to the amount other states will receive, her office said.

Failure to live up to the principal reduction part of the agreement will trigger cash payments to the state of up to $800 million by the banks, which California can seek in state courts.

Harris said she is expanding the Attorney General's Mortgage Fraud Strike Force, which already has 42 members, and she said she will continue an investigative alliance recently announced with Nevada.

The attorney general said she will propose legislation to protect homeowners, including a single point of contact with banks for mortgage-holders and an end to the frustrating practice by banks in working with homeowners on mortgage modifications while at the same time preparing to foreclose.

"This is an historic amount of relief for California homeowners, but it is one piece of a broader focus. We will continue our crackdown on mortgage fraud and quickly move to pass legislation that will simplify, reform and upgrade our broken mortgage system," Harris added.

Additional details on the settlement, including how homeowners can apply for relief, can be found at www.oag.ca.gov.

Article by Pete Carey