Big news in the real estate world today as state and federal officials got together in Washington to announce a settlement of more than $25 billion reached with five of the nation’s largest banks over their foreclosure practices. The settlement was reached after months of negotiations and is the largest multistate settlement since the Tobacco Settlement in 1998. The settlement involves the country’s five largest loan servicers, finding that they engaged in practices that violated the law including routinely signing foreclosure-related documents outside the presence of a notary public without really knowing whether the facts they contained were correct (robosigning). It is hoped that the landmark announcement will help many current homeowners in financial trouble keep their homes.
“This settlement is a big first step toward addressing the wrongs,” said North Carolina Attorney General Roy Cooper in statement. “Through a powerful agreement, backed by a federal court order and supervised by an independent monitor, we will ensure that servicers are fair with consumers.”
The settlement will also put new standards in place to help prevent a similar situation from happening again. An independent monitor will oversee the creation of new national standards for mortgage servicing. The new standards promise to return integrity and accuracy to foreclosure and bankruptcy proceedings and put an end to robosigning (the signing affidavits filed with the court without personal knowledge). The Servicing Standards Highlights are available as a downloadable PDF from the NationalMortgageSettlement website.
The five mortgage servicers involved in the settlement will contribute to programs to help compensate those who have lost their homes as well as to help current homeowners avoid foreclosure. Around $17 billion of relief will go to around 1 million current homeowners, helping them to reduce the principal amount owed on their mortgages.
Borrowers will not immediately know if they are eligible for relief. Over the next 30 to 60 days the settlement negotiators will chose an administrator to oversee the process. Over the next six to nine months the administrator, state attorneys general and mortgage services will work together to find the homeowners eligible for the immediate cash payments, principal reductions and refinancing and will send them letters. It is expected that the settlement will be executed over the next three years.
Borrowers from Oklahoma will not be eligible for any of the relief directly to homeowners because Oklahoma elected not to join the settlement. Loans owned by Fannie Mae or Freddie Mac are also not impacted by this settlement. Borrowers who are underwater will be able to refinance at today’s low interest rates and loan servicers are obligated to provide up to $3 billion in refinancing relief nationwide. Those who already lost their homes to foreclosure between January 1, 2008 and December 31, 2011 may also be eligible for some relief. $1.5 billion will be distributed nationwide to some 750,000 borrowers, which works out to approximately, $2,000 per homeowner. The settlement administrator will send claim forms to persons eligible for cash restitution. Those who accept the payment do not lose their right to sue the servicers.
For complete details visit the National Mortgage Settlement website.