It’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 )