Updating our post of a few days ago, federal and state officials (including California) yesterday announced a $26 billion foreclosure settlement with five of the largest home lenders. The deal settles potential state charges regarding improper foreclosures based on robosigning, seizures made without proper paperwork.
What does it mean to California homeowners?
1- Principal reduction: At least $17 billion will go to reducing the principal owed by homeowners who are both underwater and behind on their mortgages.
The agreement calls for principal reduction for as many as 1 million people. A closer look at the numbers reveals that the money may not be of much help especially here in the Bay Area communities because many people in this region need more than the $17,000 average reduction that would result if the money is split among 1 million homeowners. However, the agreement for total principal reduction could go higher — to as much as $34 billion — since the agreement requires deeper principal reductions for the most troubled loans.
2- Refinancing: With the new HARP program up to 750,000 other underwater homeowners who are current on their mortgages may be able to refinance their current loans at lower rates. This people will not receive a reduction in principal. With mortgage rates near record lows, homeowners could receive substantial savings on their monthly payments. Keep in mind that that even with lower payments homeowners will continue feeding the banks money while not seeing any equity build up in their home.
3-Robosigning payments: The settlement gives about $1.5 billion to the homeowners who had their homes foreclosed upon between Jan. 1, 2008 and Dec. 31, 2011, and who meet other criteria. They will receive up to $2,000 each.
Accepting a robosigning payment does not preclude homeowners who lost their home in an improper foreclosure from suing the bank to recover damages.
Participating banks: The five mortgage servicers included in the settlement include: Bank of America, Chase, Citigroup, Wells Fargo, and Ally Financial
Although the settlement number seems high, this deal will only help a faction of struggling homeowners. The relief would not be available to those homeowners whose mortgages have been sold to the government-sponsored mortgage guarantors Fannie Mae and Freddie Mac who have had their own shady dealings.