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WASHINGTON - The mortgage settlement that
government officials announced Thursday is intended to help victims of
foreclosure abuses that followed the housing bust.
Many companies that process foreclosures
failed to verify documents. Some employees signed papers they hadn't
read. Or they used fake signatures to speed foreclosures — a step
called "robo-signing." As a result, some homes were seized
improperly.
Here's a look at what the settlement will
and won't do for current and former homeowners:
Q: Who stands to benefit?
A: Most of the money would go to some
homeowners who are "underwater." That means they owe more on
their loan than their home is worth. Many are struggling to make their
payments and are at risk of foreclosure. Yet because they have no home
equity, they've been unable to refinance into a lower-rate loan. For
about 1 million underwater homeowners, their loan principal will be
reduced by an average of $20,000. But more than 90 percent of underwater
homeowners won't be helped. Some, however, might be eligible to
refinance at a rate of 5.25 percent.
Q: How might the settlement help people
avoid foreclosures?
A: It requires that banks make
foreclosure a last resort. And it bars lenders from foreclosing on a
homeowner who is being considered for a loan modification. If this
worked effectively, "it would help borrowers, lenders, the entire
country," said Ray Brescia, a visiting law professor at Yale
University, who has tracked the housing crisis. But he cautioned that it
would help only if diligently enforced.
Q: Who's eligible for relief?
A: Those whose loans are owned or
guaranteed by private lenders. Roughly half the mortgages in the United
States — about 30 million loans — are owned by private lenders. The
other half are owned by government-controlled mortgage giants Fannie Mae
and Freddie Mac. Homeowners with these mortgages aren't eligible.
Q: How will the deal help those who
unfairly lost their home to foreclosure due to robo-signing?
A: Roughly 750,000 households — about
half who are eligible for aid under the deal — could get checks for
$2,000 if they lost their homes between 2008 and 2011. Critics note that
that's not much relief for people who lost their homes when they were
improperly foreclosed upon.
Q: Will homeowners and states still be
able to take action against lenders on their own?
A: Homeowners who get checks will not
lose their rights to sue lenders in court. And states will still be able
to criminally charge lenders and servicers who engaged in deceptive or
illegal foreclosure practices. Missouri, for example, charged a
Georgia-based mortgage servicer and its founder last week on charges of
falsifying 68 notarized deeds on behalf of mortgage lenders.
Q: Could the settlement help repair the
troubled housing market?
A: Possibly, but only in the long run.
U.S. banks will likely process foreclosures faster now that a deal has
been finalized. Foreclosure filings have slowed because of backlogged
courts, judges skeptical of foreclosure documents and lenders awaiting a
final government-backed deal. "If it helps 1 million homeowners
over the next few years, it should help housing prices stabilize and
start rising again," said Mark Zandi, economist at Moody's
Analytics. "And this should unclog the foreclosure process."
Q: Is the settlement fair?
A: The deal forces the five largest
mortgage lenders to reduce loans or send checks to nearly 2 million
American households. But considering the range and depth of the U.S.
housing crisis, the payout amounts to small change for the banks. And
only a fraction of people who likely need help will get it.
Q: Who will enforce the terms of the
deal?
A: North Carolina's banking commissioner,
Joseph A. Smith Jr., will monitor enforcement. Lenders that violate the
deal could face $1 million penalties per violation and up to $5 million
for repeat violators. The banks will also have to pay fines to the
federal government if they don't use the funds to help mortgage holders.
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