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What You Need to Know About the National Mortgage Settlement

National Mortgage Settlement

National Mortgage Settlement

Here is a Re-Blog from my attorney Steve Beede sjbeede@bpelaw.com

Since the National Mortgage Settlement was first announced last month, we’ve been awaiting the details of what this will mean for upside-down owners. Details have slowly emerged and yesterday, the proposed Settlement documents were filed in Federal Court.  Although the Settlement still requires Court approval, what we’re seeing is the potential for some very significant relief for those at risk of losing their homes. Today, I’ll share with you what I believe you need to know about the National Mortgage Settlement and what to expect going forward.

 

On Monday, March 12th, the proposed Settlement documents were filed in Federal Court revealing what each of the Lenders is required to do. You can read the details at http://nationalmortgagesettlement.com/.

How they’ll meet those obligations is critical to upside down homeowners. Those details are slowly emerging through analysis, press-releases, and side deals.

Here’s what you need to know so far:

1.  The Lenders – the Settlement ends lawsuits by the Federal Government and State Attorneys General against:

(1)  Bank of America
(2)  Wells Fargo
(3)  JP Morgan Chase
(4)  Citigroup, and
(5)  Ally Financial (formerly GMAC).

2.  The Settlement – requires the 5 Lenders to collectively provide up to $25 Billion in relief to distressed borrowers and payments to government agencies.  This will be provided through a combination of direct cash payments and credits for debt reduction and other loan adjustments.  The individual lender shares are:

Lenders Pmts. To Government Debt Reduction Total
Bank of America $3.24 Billion $8.58 Billion $11.82 Billion
Wells Fargo $1.01 Billion $4.43 Billion $5.35 Billion
JP Morgan Chase $1.08 Billion $4.21 Billion $5.29 Billion
Citigroup $415 Million $1.79 Billion $2.21 Billion
Ally Financial (GMAC) $110 Million $200 Million $310 Million

 

 

 

 

 

 

3.  The Allocations – The Settlement requires the Lenders to provide the relief through three

broad categories:

(1) Foreclosure Assistance Payments – paid to State and Federal Government agencies to fund and/or reimburse their various borrower assistance programs.  The agencies get to use these funds as they see fit;

(2) Consumer Relief Programs – These funds are not actually “out-of-pocket” payments.  Rather, the Lenders will receive “credits” against this obligation in exchange for principal reductions on existing loans.  These will be made in two different categories:

(a)  1st Lien Principal Forgiveness – they will receive “credits” against their Settlement obligations for each $1 of debt forgiveness on loans. The amount of the credit will likely vary based upon the loan to value (LTV) ratio involved.  A minimum of 30% of the credits must be allocated to principal forgiveness on loans with an LTV of 175% or less.

(b)  2nd Lien Principal Forgiveness – Lenders will receive a sliding scale of credits based upon the delinquency of the borrower with the least delinquent loans receiving the highest credits. Presumably, those who are not delinquent at all on their 2nd loans will get no relief.

(3) Loan Refinancing – These funds will be used to assist debtors in refinancing their existing loans. Credits are likely to be based upon a formula that factors: (1) new interest rate compared to old interest rate; and (2) amount of debt forgiveness involved. So, each loan can bring a different result.

4.  The Side Deals – The Settlement is very complex and the devil will be in the details since each lender can map out exactly how it plans to satisfy its allocations.  See my recent Blog on the Wells Fargo roadmap for an example of that Lender’s plans. However, already participating lenders are cutting “side-deals” to obtain a better result by offering even better settlement options:

a.  Bank of America – announced deeper principal reductions for about 200,000 homeowners, up to $100,000 each.  In exchange, they will avoid up to $850 Million in penalties.  BofA has also announced that it is temporarily halting foreclosures while it identifies and solicits the potential beneficiaries of these reductions.

b.  Ally Financial – announced possible principal reductions to current market value.  Further, some borrowers in extreme financial distress may get reductions to 85% of their home’s value.

5.  What to Do Now – Although the Settlement terms must still be approved by a Federal Judge, if you are in financial distress and in danger of losing your home, contact your State Attorney General’s office for information and contact links with the specific lenders.  The Texas  AG’s website for the National Settlement is at

https://www.oag.state.tx.us/oagnews/release.php?id=3969

and has internet and/or phone contacts for each of the participating lenders.  Don’t expect immediate relief.  The Settlement is a process that still requires Court approval, will take several months to get organized, and will take up to three years to fully provide benefits.  But, it does promise substantial relief for those who qualify and diligently pursue the available benefits.

Meanwhile, if you or someone you know is struggling with an upside-down property and don’t know what to do, our NO COST Consultation Program and short sale negotiation service can offer knowledge of what to expect and form strategies to either keep the property or move on with as little financial risk as possible. To schedule a Consultation, please contact our office at 832-330-4588.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan, especially if youre facing a lender lawsuit, get competent legal advice in your State immediately so that you can determine your best options.

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