Home Experts: Local News
Mortgage relief deal reached as holdout states join in
Story Updated: Feb 17, 2012
The deal, so far, only applies to the five banks who signed it. It does not apply to government-owned mortgage giants Fannie Mae and Freddie Mac, which hold more than half of all the mortgages in the U.S.
The proposed settlement distributed last month to state officials included rough estimates on the benefits each state's homeowners might receive, but did not include guaranteed numbers.
California received a guarantee its struggling homeowners would receive around $8 billion in relief, two people familiar with the negotiations said. The state itself would receive around $430 million for foreclosure prevention and other housing efforts.
Under the terms of the agreement, the servicers are required to collectively dedicate $20 billion toward various forms of financial relief to borrowers. At least $10 billion will go toward reducing the principal on loans for borrowers who, as of the date of the settlement, are either delinquent or at imminent risk of default and owe more on their mortgages than their homes are worth.
At least $3 billion will go toward refinancing loans for borrowers who are current on their mortgages but who owe more on their mortgage than their homes are worth. Borrowers who meet basic criteria will be eligible for the refinancing, which will reduce interest rates for borrowers who are currently paying much higher rates or whose adjustable rate mortgages are due to soon rise to much higher rates.
Up to $7 billion will go towards other forms of relief, including forbearance of principal for unemployed borrowers, anti-blight programs, short sales and transitional assistance, benefits for service members who are forced to sell their home at a loss as a result of a Permanent Change in Station order, and other programs.
Because servicers will receive only partial credit for every dollar spent on some of the required activities, the settlement will provide direct benefits to borrowers in excess of $20 billion.
The Office of the Comptroller of the Currency also said on Thursday that Bank of America, Citigroup, JPMorgan and Wells Fargo have agreed to pay a penalty of $394 million as part of a settlement they reached in April 2011 with regulators over foreclosure abuses.
The banks can meet the terms of the penalty through payments they make as part of the larger settlement with state attorneys general and the Justice Department, the OCC said.
Reuters and The Associated Press contributed to this report.