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What the Government’s Foreclosure Settlement Means for Homeowners

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Foreclosure SignsIt’s no secret that, since the mortgage market meltdown, there has been a wave of foreclosures. Some of those foreclosures, though, came even though they probably shouldn’t have. One of the biggest controversies of the real estate market mess was robo-signing, a process by which millions of homes were automatically foreclosed upon — even if the homeowners were up to date on their payments.

In order to help alleviate some of the problems caused by these seizures, many state attorneys general and the federal government looked into taking action against some of the biggest offenders. Recently, though, all the attorneys general except Oklahoma’s, and the federal government, reached a $26 billion settlement with five of the largest home lenders.

Where is the Money Going?

Banks are required to foot most of the bill, and use the $26 billion to help distressed homeowners. The breakdown of where the funds are supposed to go is as follows:

  • $3 billion: This money is supposed to be set aside for those who are underwater on their mortgages, but still up to date on their payments. The point is to help them refinance their mortgages to lower rates, instead of receiving a principal reduction.
  • $1.5 billion: Homeowners who meet criteria for robo-signing violations, and who had their homes foreclosed on between January 1, 2008 and December 31, 2011, can receive up to $2,000 apiece.
  • $17 billion or more: Meant for homeowners who are behind on their mortgage payments and underwater. According to the agreement, up to 1 million homeowners are supposed to receive principal reductions. However, there is the possibility that principal reduction could far exceed that number, since the banks agreed to make deep principal reductions on mortgages for those in the greatest trouble.

Will It Help?

The real question, of course, is this: Will the settlement help? One of the issues that many people have with the new plan is that a bulk of the settlement money goes to homeowners who are having trouble with their mortgages — not to victims of robo-signing. Besides, is $2,000 really adequate for those who may have lost their homes in this debacle? And, even for homeowners who fought and kept their homes, $2,000 seems like poor repayment for what surely was costly and time-consuming and not even their fault.

Concerns that those already in trouble are being focused on, rather than those who are up to date on their mortgages and just want help refinancing, are once again surfacing. President Obama did present a new refinance plan (that still needs Congressional approval) that extends refinancing help to those who have mortgages that aren’t held or serviced by Freddie and Fannie.

Current refinancing programs aimed to help homeowners who are current on their mortgages, but still unable to refinance due to loan-to-value problems, only helps those with government-backed loans. The new program, expected to cost between $5 billion and $10 billion, would reach more people, and be paid for by levying a large fee on banks.

So far, efforts to get the housing market going again, and to repair the damage done by the mortgage market/real estate market mess, have fallen short.

What do you think of the settlement? Will it help?

(Photo: ImageMD)

{ 5 comments, please add your thoughts now! }

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5 Responses to “What the Government’s Foreclosure Settlement Means for Homeowners”

  1. Jeremy says:

    I understand that they need to revive the housing market for the sake of the economy. It is just frustrating to see money going to people who got into financial trouble on their own. The robo-signing victims definitely need support though. It seems that more and more people are no longer held accountable for their actions. Th self entitled generation now gets the government to help them out if they make mistakes.

  2. Rosevelt says:

    I agree with you, a lot of people got in trouble themselfs. But like me which is one one them that throught We could me it ad can,everything skyrocketed except my salary. That a very GOOD THING that we LIVE IN A AMERICA were we can get help. WE do pay TAXES. WE HELP ALL OTHER COUNTRYS WHY NOT OUR OWN PEOPLE. DID NOT THE GOVERNMENT HELP THE BIG BANKS,BIG CAR MAKERS. ONE MISTAKE THE FEDERAL MADE WAS GIVE THE BANKS THE MONEY TO HELP THE PEOPLE,WHERE IS THE HELP. THEY SHOULD OF HANDERED IT THEMSELVES

  3. clarenceknarr says:

    we lost are home in2008 the bank was indymac bank wish is no longer in business.they yumped my note from1500amonth to3200amonth.we went to21 century to help save are home they took are 3000.00 dollars and did nothing. we lost there any way the goverment can help us.attn;ruben luengas please help, thank you very much.

  4. Clarence Vincent says:

    I had IndyMac also, who do I contact for a refund?

  5. jennifer ross says:

    lost home about8 yrs ago how do I get any help.

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