A handful of the country’s biggest banks have agreed to a settlement with state and federal officials over the improper way they handled foreclosures. It’s a big deal -- the biggest involving one industry and the states since the tobacco deal of 1998. It involves 49 state attorneys general, five mortgage servicers, two federal agencies, $26 billion, and maybe even you.
This all goes back to that “robo-signing” scandal that came out toward the end of 2010. Several major banks admitted that workers had been essentially rubber-stamping massive numbers of foreclosure documents without properly reviewing them. After months of negotiations, the banks have agreed to change their foreclosure processes and struggling borrowers may get some relief.
The $26 billion isn’t all going straight to homeowners, and probably not right away, either.
The bulk of the money, about $17 billion, will help borrowers who are either underwater or behind on their mortgage payments. That money will cut homeowners’ loan principals by about $20,000 each.
Next up: $5 billion to the states. Money will be distributed to every state except Oklahoma, who gave the deal a thumbs-down. That’s the only cash in play, since the rest of the money is in the form of mortgage modifications. Out of the states’ money, $1.5 billion will trickle down to people who lost homes to foreclosure. They could get up to $2,000 each. The rest will help others currently facing foreclosure.
$3 billion is allotted for refinancing. Homeowners who are current on their mortgage payments may be able to get lower interest rates.
$1 billion is the Federal Housing Administration’s cut.
So there’s the breakdown, but what does it mean for you?
If you were foreclosed on between 2008 and 2011, you can’t get your home back, but you could be eligible for up to $2,000. The government expects three-quarters of a million people who were foreclosed on to qualify. You might also be eligible for help fighting a foreclosure, a loan modification, or refinancing assistance.
No matter what, you need to check with your bank for eligibility. The banks involved in the agreement right now are Bank of America, Wells Fargo, JPMorgan Chase, Citigroup, and Ally Financial. Nine other mortgage servicers could also join in the deal, so keep that in mind as the settlement plays out. Freddie Mac and Fannie Mae loans are not included.
The settlement still has to get court approval before any money is doled out. It could take up to three years for homeowners to get relief, but officials would like it to happen within a year.