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$26 billion settlement between banks, states not what it seems

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POSTED February 16, 2012 8:58 p.m.

The big headline announced this month is the $26 settlement reached between the nation’s five largest banks and 49 state attorney generals. The settlement is to compensate and assist homeowners that have been either foreclosed on improperly, or homeowners that owe significantly more than the value of their home.

The basics of the plan are as follows:

•17 billion dollars will be used to reduce principle balances for underwater borrowers and assist homeowners that are behind on payments.

•3 billion dollars will go towards refinancing mortgages for borrowers that are underwater but current on their payments. This will enable these borrowers to take advantage of the incredibly low mortgage rates.

•5 billion dollars will go to state and federal governments to enable them to fund payments to homeowners that have lost their homes due to improper foreclosure proceedings.

•The remaining 1 billion dollars will be paid directly by Bank of America to the Federal Housing Administration to settle charges that its subsidiary, Countrywide Financial, defrauded the housing agency.

The final piece of the settlement is that the banks will eliminate robo-signing all together and use proper legal procedures in completing foreclosures.

It is not often that you have heard me be critical of anything, however I must break down this settlement for you so you can see what a joke this settlement really is. If you don’t like sarcasm, I suggest you stop reading now.

The settlement states that borrowers that are “severely underwater” will receive money for principal reduction. The irony is that the average principal reduction will be about $20,000. If a borrower is “severely underwater” isn’t their negative equity much greater than that? Do you really think $20,000 is going to incentivize a borrower that is $80,000 or more under water to start making payments?

Secondly, imagine you are a homeowner that was improperly foreclosed on, you lost your home, your life has been uprooted illegally, and now you receive a check for no more than $2,000. Let’s see, your house was illegally taken from you but you now have $2,000 in your hand…yep I know I would feel so much better. NOT! (I am not suggesting that homeowners that lost their homes illegally in foreclosure, would not have eventually lost them, however the law needs to be followed and the banks have not been punished for wrong doing.)

Lastly, $20 billion of the total settlement will be paid out gradually as claims are approved. None of the 5 banks are writing checks for anything more than $1 billion up front. All other money to be paid out will come as claims are settled and agreed upon. To put it in perspective, think for a moment how long does it take for these banks to approve short sales, or properly process a foreclosure, or complete a loan modification? (Average on all counts is 6 months or more) Do you really think they are going to process these claims quickly? Not a chance in this world they will do it. They will let this drag on as long as they can. That is how they do business.

I apologize for the rant today. Next week I will be better. I guess you know how I feel about the big banks huh?

As your mortgage professional, I am happy to assist you with any information you may need regarding mortgage or real estate information. I welcome the opportunity to serve you in any way I possibly can. Please feel free to reach me at (209)825-9383

 

 

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