AG Mortgage Settlement Good For Homeowners, But Will It Remedy the Market?
Today in Washington DC, U.S. Attorney General Eric Holder announced details of the mortgage relief settlement, outlining key provisions of the $26 billion federal-state mortgage foreclosure pact, details of which can be found on the new National Mortgage Settlement website.
The act ends more than 13 months of negotiations between state attorneys general and banks and has the approval of every U.S. state attorney general except Oklahoma. The act will become official once it has been ruled on by a judge. The settlement was agreed upon by five of the nation’s largest lending institutions: JP Morgan/Chase, Citi, Ally, Bank of America and Wells Fargo.
With the settlement, banks have agreed that flawed or abusive practices were used in foreclosure processes and have set aside funds to re-mediate homeowners who were foreclosed upon or whose homes are worth less than the mortgages.
“The best thing about the mortgage settlement is that it’s done,” said Zillow Chief Economist Dr. Stan Humphries.
“It will be a good thing for many individuals – and therefore is worthwhile – but it’s important to manage our expectations of the effect it will have on the economy. As far as helping the housing market as a whole, it’s a drop in the bucket. To put it into perspective, negative equity is a $750 billion problem, and this settlement designates $17 billion for mortgage relief.”
The settlement is outlined to provide:
- Immediate aid to homeowners needing loan modifications now, including first and second lien principal reduction. The servicers are required to work off up to $17 billion in principal reduction and other forms of loan modification relief nationwide. State attorneys general anticipate the settlement’s requirement for principal reduction will show other lenders that principal reduction is one effective tool in combating foreclosure and that it will not lead to widespread defaults by borrowers who really can afford to pay.
- Immediate aid to borrowers who are current, but whose mortgages currently exceed their home’s value. Borrowers will be able to refinance at today’s historically low interest rates. Servicers will have to provide up to $3 billion in refinancing relief nationwide.
- Immediate payments to borrowers who lost their homes to foreclosure with no requirement to prove financial harm and without having to release private claims against the servicers or the right to participate in the OCC review process. $1.5 billion will be distributed nationwide to some 750,000 borrowers.
- Immediate payments to signing states to help fund consumer protection and state foreclosure protection efforts.
- First ever nationwide reforms to servicing standards; something that no other federal or state agency has been able to achieve. These servicing standards require single point of contact, adequate staffing levels and training, better communication with borrowers, and appropriate standards for executing documents in foreclosure cases, ending improper fees, and ending dual-track foreclosures for many loans.
- State AG oversight of national banks for the first time. Something no court could award.
- National banks will be required to regularly report compliance with the settlement to an independent, outside monitor that reports to state Attorneys General.Servicers will have to pay heavy penalties for non-compliance with the settlement, including missed deadlines.
However, attorneys general in states like New York, California, Florida, Delaware and Michigan have negotiated into the settlement their rights to seek legal recourse against banks for claims not covered by this settlement.
This agreement holds the banks accountable for their wrongdoing on robo-signing and mortgage servicing. This settlement does not seek to hold them responsible for all their wrongs over the years and the agreement and its release preserve legal options for others to pursue.
Specifically, this settlement does not:
- Release any criminal liability or grant any criminal immunity.
- Release any private claims by individuals or any class action claims.
- Release claims related to the securitization of mortgage backed securities that were at the heart of the financial crisis.
- Release claims against Mortgage Electronic Registration Systems or MERSCORP.
- Release any claims by a state that chooses not to sign the settlement.
- End state attorneys general investigations of Wall Street related to financial fraud or the financial crisis.