Mortgage deal could bring billions in relief

On Thursday, federal and state officials announced a $26 billion foreclosure settlement with five of the largest home lenders.  California is expected to receive approximately $12 billion in principal write-downs, including through short sales, over the next three years, according to the state attorney general's office.

Making sense of the story

• The deal settles potential state charges about allegations of improper foreclosures based on robo-signing, seizures made without proper paperwork.
• The settlement sets up a federal monitor to oversee the process and try to prevent the challenges that tripped up many homeowners seeking help in earlier programs designed to address the housing crisis.
• Most of the relief will go to those who are underwater on their homes.  That relief will come over the course of the next three years, with banks having incentives to provide most of the relief in the next 12 months.
• At least $17 billion will go to reducing the principal owed by homeowners who are underwater and behind on their mortgages.
• Up to 750,000 other underwater homeowners who are current on their mortgages will be able to refinance their current loans at lower rates.  They will not receive a reduction in principal, but with mortgage rates near record lows, they could receive substantial savings on their monthly payments.
• Approximately $1.5 billion will go to homeowners who had their homes foreclosed upon between Jan. 1, 2008 and Dec. 31, 2011, and who meet other criteria.  They will receive up to $2,000 each.

The five mortgage servicers that are parties to the settlement include Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, and Ally Financial (formerly GMAC).

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More mortgage relief from the White House – but congressional ok doubtful

In his State of the Union Address, President Obama laid out a plan to help responsible borrowers and support a housing market recovery.  Details of that plan were released yesterday.  However, funding for the proposed program must be approved by Congress, lowering the possibility that it will be implemented quickly. 

Making sense of the story

• Operated by the Federal Housing Administration, the plan would allow underwater homeowners to refinance into cheaper federally insured loans.  Borrowers with good credit who are current on their loan payments are eligible.
• The measure also streamlines the process of refinancing an underwater mortgage, eliminating the need for an appraisal or submitting a new tax return.
• To qualify, borrowers must be current on their mortgage, have a minimum credit score of 580, and must be refinancing a loan on a single-family owner-occupied principal residence.
  
   
• Lenders only need to confirm that the borrower is employed.  Loans that are more than 140 percent of the home value probably would not qualify until banks wrote down part of the balance.
• Congress must approve $5 billion to $10 billion in funding, leading housing experts to praise the plan’s objectives with skepticism of it passing this year. 

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