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Mortgage Relief May Be on the Way

When you break something, you clean it up. And that’s just what the federal government is attempting through its recent foreclosure settlement: clean up the mess left behind from the mortgage crisis and hold accountable those responsible for enabling it. Here’s how.

Are you a struggling homeowner who owes more on your mortgage than your house is worth? Were you recently foreclosed upon? Are you looking for a home loan modification – perhaps a lower interest rate? If you answered “yes” to any of these questions, help could be on the way, thanks to a $25 billion foreclosure settlement that the U.S. government announced in February 2012. The agreement was struck among federal agencies, attorneys general from 49 states and the District of Columbia (Oklahoma held out), and thecountry’s five largest loan servicers: Ally Financial/GMAC, Bank of America, Citigroup, J.P. Morgan Chase and Wells Fargo. Over the next three years, these five banks will offer financial relief to troubled homeowners. Not all consumers will qualify for benefits (more on that below), but for those who will, loan modifications and aid packages averaging $2,000 per household could help more homeowners avoid foreclosure. So, if you have a mortgage with one of these five banks, keep reading.

What’s This Deal About?

For starters, the five banks agreed to provide $20 billion in direct consumer relief, of which $3 billion will go toward refinancing homes worth less than their mortgages and $17 billion will pay for national foreclosure initiatives. Those initiatives include lowering loan balances on homes valued less than their mortgages and reducing mortgage interest rates to today’s historically low levels. To be eligible for refinancing when underwater, for example, a borrower must be up-to-date on their mortgage payments, have a loan-to-value ratio in excess of 100%, and have a current interest rate exceeding 5.25%. The refinanced rate must also decrease monthly payments by at least $100.

The settlement also includes another $4.25 billion that will be directed to U.S. states for foreclosure prevention efforts, like counseling, legal assistance, and lenience for some homeowners in between jobs. Further, part of this sum will enable payments to victims of mortgage servicing abuses, such as “robo-signing.” This is when servicers used false or hastily prepared paperwork to quickly foreclose on struggling homeowners. Finally, the federal government/Federal Housing Administration will receive another $750 million.

The five banks must also incorporate new servicing standards into their mortgage practices to improve accountability. The new standards compel banks to:

  • Review all information in foreclosure affidavits personally
  • Send homeowners pre-foreclosure notices, detailing mitigation options, an account summary and facts supporting the lender’s right to foreclose
  • Evaluate borrowers meticulously for all available loss mitigation options before referring them for foreclosure
  • Perform regular audits and provide detailed billing statements to ensure the accuracy of accounts and default fees
  • Provide customer communications, timelines, and e-portals so borrowers can monitor the status of their loan modifications
  • Assign an employee as a continuing, single point-of-contact for borrowers seeking loss mitigation assistance

How Do You Get Your Money?

Upwards of 750,000 U.S. borrowers will be eligible for about $2,000 each if they were foreclosed upon since 2008 by one of the participating five banks. Those borrowers will be notified of their right to file a claim. However, if your mortgage is with one of the banks involved, contact them using their toll-free number to see if you stand to benefit:

  • Ally Financial/GMAC: 800-766-4622
  • Bank of America: 877-488-7814
  • Citigroup: 866-272-4749
  • J.P. Morgan Chase: 866-372-6901
  • Wells Fargo: 800-288-3212

Beyond that, states will be disseminating money to some borrowers who lost their home to foreclosure. However, it will take time for states to establish the necessary processes and procedures for determining eligibility and issuing checks. In the meantime, contact your state attorney’s office by phone, or on their website, to see if you can apply for benefits. Finally, the U.S. Department of Justice encourages consumers to visit www.NationalMortgageSettlement.com, a new website that provides additional settlement information. You can also click here for additional eligibility information.

What if You Don’t Qualify for the Settlement?

While the current settlement clearly won’t reach all struggling homeowners, the hope is that additional banks will adopt its terms and conditions, thereby leading to more principal reductions and loan modifications. Consult with your lender about your specific situation and visit the CareOne online Article Library for additional tips on housing- and budget-related issues. 

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