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Historic National Mortgage Settlement Approved
By Kimberly Mirando
A $25 billion foreclosure settlement with the nation’s five largest banks has been approved, settling foreclosure abuse charges dating back to 2008. The historic settlement will allow nearly 2 million of the nation’s hardest hit home borrowers to see a significant reduction in their mortgage payments.
Under the national mortgage settlement, Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial agreed to reduce the principal on loans held by underwater homeowners, refinance some mortgages to the current low interest rates, and compensate those who lost their homes to improper foreclosure practices.
The banks also agreed to stop “dual-tracking,” or evaluating homeowners for mortgage modifications while simultaneously initiating foreclosure proceedings on them, as well as to stop “robo-signing” — using false documentation to rush homes into foreclosure.
So what does this mean for borrowers?
The national mortgage settlement is similar to a class action lawsuit settlement in that it provides relief to a nationwide class of homeowners who were victims of foreclosure abuse (except for borrowers in Oklahoma).
Of the roughly $25 billion national mortgage settlement, at least $17 billion will go to reducing principal for borrowers who are underwater. These eligible borrowers will be able to receive about $20,000 in principal reduction from four of the banks, while Bank of America borrowers will average $100,000 or more.
Another $3 billion of the settlement will go toward refinancing mortgages for borrowers who are current on their payments, allowing them to take advantage of the historically low interest rates that are currently available.
The banks will also pay $5 billion to the states and federal government to pay homeowners who lost their homes to foreclosure. This fund will provide cash payments of $1,500 to $2,000 to eligible borrowers who lost their home to foreclosure between January 1, 2008 and December 31, 2011. A settlement administrator will send claim forms to persons eligible for this cash restitution.
Borrowers are encouraged to contact their mortgage servicer to obtain more information about specific loan modification programs and whether they will be impacted by the national mortgage settlement.
Updated October 4th, 2012
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