$25 Billion Dollar National Mortgage Settlement principal reduction?

THIS IS ANOTHER OLDER BLOG I FAILED TO PUBLISH EARLIER.

If you hate reading and want to jump to the Vondran Legal Hour Internet Real Estate Radio Show to hear the details of the $25 billion attorney general mortgage settlement click here.

THE FOLLOWING IS GENERAL LEGAL INFORMATION ONLY.   I HAVE NOT SEEN THE ACTUAL SETTLEMENT AGREEMENT (I DO NOT BELIEVE IT IS FINALIZED YET) AND SOME OF THIS INFORMATION BELOW MAY NOT BE CORRECT.  PLEASE DO YOUR OWN INDEPENDENT RESEARCH AND DO NOT RELY ON THE FOLLOWING INFORMATION:

“The Settlement” (Called the second largest attorney general settlement aside from the 1998 tobacco settlement)

In case you have not heard by now, the united states attorney generals have reached a settlement agreement with the 5 major banks (Wells Fargo, Chase, Citi, Ally Financial and BofA) to settle a dispute over the use of robo-signers, false affidavits, and notary fraud that was present in so many foreclosures across the United States (contrary to what the banks were telling the judges in wrongful foreclosure lawsuits).   Well at least now we can confirm they realize what was going on, and maybe this means they own up to it – although I would imagine the settlement agreement would admit no fault of any kind.

The overall details are as follows:

• From what I can gather 1 billion goes to the federal government and 430 million goes to California (Department of Justice)?  They are hiring 42 more persons for their mortgage fraud task force.

• It’s a $25,000,000 (25 billion dollar) settlement with the above 5 loan servicers/lenders.  This amount could go up, especially if other servicers sign on to the settlement agreement.   California is getting the lion’s share of the settlement pie with “up to 18 billion dollars” of the 25 billion.

• 17 Billion of this amount is supposed to go to principal reduction.  For California homeowners, 12 billion is earmarked for this purpose.  This is where it gets interesting, if you have a Fannie Mae or Freddie Mac owned loan (you can look it up on their websites) YOU WILL NOT QUALIFY.  I have not been able to confirm whether this exclusion applies to all the settlement terms or just this one – best I can tell is if you have a Fannie or Freddie loan you are SOL all the way (which is about 60% of the California loans).  If anyone knows for sure please let me know.

• Across the United States it is estimated that there are about 1 million loans that may qualify for principal reduction (I do not know where this number comes from when 33% of the homes in the United States are upside down).  For California homeowners, it has been estimated that about 250,000 homeowners that may qualify for the principal write-down provision (on average, they are saying $20,000-maybe $50,000 max reduction).  Will this be enough to prevent California homeowners from walking on their properties?  Who knows?  It is also not clear whether the write-downs will come from the five lenders “portfolio loans” that they own, or the securitized loans that they service (mortgage backed securities).

• NOTE:  Apparently a provision of the agreement states that if the banks failure to provide the minimum 12 billion in principal reduction to California residents, then they must pay 800 million to the State of California.  Hmm.  Interesting provision.  We will have to see how that plays out.

• 3 billion dollars is earmarked for an underwater refinancing program.  If your property is underwater, although you cannot now refinance your loan, you can now with this settlement term.  The rate I found was 5.25% but again this needs to be confirmed.  For California homeowners, 849 million is earmarked for the refinance according to the California Attorney General Press Release on the $25 billion dollar settlement.  Supposedly there are only 28,000 homeowners who will be aided by this settlement provision.  This number seems low, but who knows.  In the link below, California Attorney General Kamala Harris says there are “2 million homes underwater in California.”  The video suggests the homeowner must be underwater and current on the loan to qualify for the program.  But this is not confirmed.

• Here is a link to the California Attorney General formal public statement on the $25 billion attorney general mortgage settlement on YouTube.  Interesting to me is Ms. Harris talks about this settlement providing “principal reduction and short sale relief.”  I am not sure what the short sale relief is, but I will be on the lookout for this information if it becomes available.  In regard to the principal reduction set forth above, she mentions this will be on a “credit” basis for dollars provided, not just dollars promised – referring to the Countywide settlement that had problems).  Again, we will have to see how this principal reduction credit system works itself out at the end of the day.  I would predict lender abuses and a tight pocket book in this area.

• 1.5 billion appears to be set aside for wrongful foreclosure “restitution.”  California has 279 million earmarked for this.  To qualify for this (what appears to be a $1,500-$2,000 payment) a person must have been the victim of a foreclosure from 1/2008 to 12/312011.  It is not clear if they have to be a robosigner victim, or what the deal is.  The one thing that has been mentioned is that a person claiming a check under this settlement clause does NOT have to waive their rights as to filing any type of lawsuit.  The settlement also does not preclude any future criminal investigations by any state or federal agency.

• California also apparently will have a 1.1 billion dollar fund set aside for miscellaneous items such as unemployment payment assistance, relocation fees, repair costs for blighted areas, etc.  No other details have been found on these issues.

• There is also a strange settlement clause that talked about “relieving the unpaid balance” on about 32,000 after these house will be foreclosed.  This is confusing.  Which 32,000 houses are they referring to?  And do they mean forgiving a deficiency judgment on these loans?  Most of the times the banks never pursue a deficiency judgment plan of attack anyway.  Maybe this ties into “credits” for money forgiven, it is not clear at this time.

• The Settlement, in addition to supposedly ending the era of the robosigned documents and foreclosures based on that, the agreement is also supposed to contain loan servicer reforms in dealing with California and Arizona homeowners (as well as other states) who find them selves in the “loss mitigation” system, trying to get a loan modification, forbearance or short sale.  Gee, that only took 5 or so years.  Plus, we have heard this before.  So this remains to be seen how well the lenders/servicers can start treating people fairly who are in default of the loans originated by the banks (some of which are downright predatory, based on falsified income, and predatory underwriting).  Topics supposedly that will be addressed include:

-       hiring enough people

-       training the staff

-       dealing with borrowers (hopefully to stop misleading people)

-       having a single point of contact for borrowers to deal with

-       (hopefully not losing documents)

-       ending improper fees

-       and to properly execute foreclosure and bankruptcy related documents

How they plan to address the problem of “who legally owns the loan” (and ensuring the proper proof of such) does not seem to be on the talking table.  I would assume that would be a deal killer.

Also, it should be noted that the settlement contemplates having an independent third party over-seeing the implementation of the settlement and ensuring compliance with it.  Apparently there are penalties and fines for non-compliance (we will see if that ever happens) of 1-5 million for repeat offenses.  The five banks are supposed to annually self report to the monitor (apparently scheduled to be Joseph Smith, JR, the North Carolina Banking Commissioner).

Recall, this was the individual Obama nominated to become chief regulator of Fannie Mae and Freddie Mac.   Any reason this job could not have went to a group more focused on consumer advocacy issues –like the recently created Consumer Financial Protection Bureau?

There is also information on the web that indicates certain counties in California will have preferences for the attorney general settlement dollars.  The breakdowns you can find on the web state as follows:

1. Los Angeles County – 3.82 billion
2. Riverside County – 1.59 billion
3. San Bernardino County – 1.13 billion
4. Sacramento County – 820 million
5. Stanislaus County – 368 million.

Again, it is not clear how this will play out, or if it is based on a “credits” and “incentives” system or what.  Let’s just hope this is not more meaningless window dressing.  Distressed homeowners, and even those who have maintained their mortgage payments (only to watch their equity disappear) have had enough of the lies, deceit, lip service, excuses, and general failure of the banks to do much about this crises, that up until the recent settlement, they have not accepted much public blame for.  Our fingers are crossed, and The Law Offices of Steven C. Vondran is here to assist with the real estate legal issues where abuses arise.  Ask to speak with “ATTORNEY STEVE.”

Resources

You can find more information at the California Attorney General Website and at the National Mortgage Settlement website.  For Arizona homeowners visit the Arizona Attorney General Mortgage Settlement page.   Apparently there will be a 3-6 month roll out period where an administrator will be selected, and then the AG’s and banks will determine who qualifies for what and then send out letters to homeowners.  You are also encouraged to contact your lender or loan servicer for more information.