On February 9, President Obama announced a $25 billion foreclosure settlement agreement between the federal government, 49 state attorneys general (all states but Oklahoma participated), and five of the country’s biggest mortgage lenders: Ally Bank (formerly GMAC), Bank of America, Citicorp, JPMorgan Chase and Wells Fargo. The deal is intended to settle potential state charges over a variety of allegations regarding improper foreclosures that arose after the housing bubble burst. Bank of America, the largest servicer, is responsible for $11.8 billion; Wells and JPMorgan Chase are each responsible for $5.3 billion; Citigroup, $2.2 billion; and Ally, $310 million. Federal officials also noted that the deal could grow to $30 billion if nine additional servers sign on.
The settlement provides relief to those Americans who are underwater on their mortgage, meaning they owe more than their homes are worth, through loan reduction and mortgage refinancing. Additionally, approximately 750,000 Americans whose homes were foreclosed upon from 2008 through the end of 2011 may also receive a restitution payment of $2,000 as part of the settlement. The lenders have 3 years to fulfill their obligations, and they receive incentives to provide relief within the first year.
The settlement deal includes $5 billion in cash and $20 billion in loan modifications promised by the five lenders. In regards to the $20 billion, approximately $17 billion will go toward assisting borrowers who have the ability to stay in their homes in making reasonable mortgage payments. At least 60% of the $17 billion will go toward principal reduction for up to 1 million homeowners. In reducing principal, officials hope that fewer individuals will end up defaulting on their loans. An additional $3 billion will assist borrowers who are current on their mortgage payments to refinance into loans with an interest rate of 5.25%. As for the $5 billion in cash, the lenders must use the funds toward other forms of homeowner assistance, including facilitating short sales and deferring payments for unemployed homeowners.
Michigan homeowners can also expect relief, as Attorney General Bill Schuette announced that the State expects to receive approximately $790 million based on its participation in the settlement. This amount is a substantial increase from the $500 million Schuette expected to receive for joining the settlement.
More information about the settlement deal, including a summary of which homeowners may be eligible for assistance, is available at https://www.nationalmortgagesettlement.com/. As always, feel free to contact the experienced attorneys of Dalton & Tomich with any of your financial, banking and land use questions.