In February, the United States government reached a settlement with our country’s five largest banks on charges of mortgage fraud, as the banks would routinely sign documents foreclosing on homes without proper review or handling of the borrowers’ accounts. The $25 billion settlement is the largest of its kind and has the potential to help over a million homeowners.
The settlement will provide homeowners with $17 billion in loan modifications, in the form of payment reductions and reducing the principal balance of the mortgages. Many homeowners have been happy with a lower payment after receiving a loan modification, but still were unhappy about the fact their home is underwater, or worth less than what they owe on it.
As loan modifications have sought to assist homeowners who are behind on their payments, little assistance has been extended to homeowners who are current on their mortgages but whose homes are underwater. The settlement will change that, as borrowers who are current on their mortgages and seeking refinancing will now be able to refinance their homes, with up to $3 billion being provided by the banks in relief.
Homeowners who lost their homes to foreclosure during this time and were victim of the robo-signing scandal involving the banks can be compensated for their loss; $1.5 billion has been set aside for the victims who lost their home between January 1, 2008 and December 31, 2011.
Nationwide standards will also be set regarding the servicing of those seeking loan modifications, including a single point of contact to simplify the communication process between the borrower and the bank; properly training staff and having a large enough staff to handle the volume of requests for loan modifications; new standards for foreclosure proceedings when the banks seek to foreclose; and no more dual-tracking, which was a tactic used by the banks whereby they would foreclose on a home while the borrower was seeking a loan modification or short sale.
The banks also have deadlines by which they must comply with these new conditions and the government can levy strict penalties against them in the event that they do not meet these deadlines. This settlement will open the doors for a more comfortable process in preventing foreclosure whether done by loan modification short sale, and every homeowner should try to benefit from it while it lasts.