Citibank, Wells Fargo, Bank of America, JP Morgan Chase and Ally Financial have agreed to provide nearly $10.6 billion in mortgage relief to homeowners. This is due to a settlement these banks made with states and the federal government earlier this year. The settlement is to compensate for abuses in foreclosure processing that go back as far as 2008. The settlement was approved in April. The banks will be given credit for cutting the principal on loans to help homeowners prevent foreclosure. They will also be used for refinancing mortgages at better interest rates.
80% for debt forgiveness
According to the article I read, 80% of the credits banks have gotten have been used to forgive debts, and for short sales and what is called a deed-in-lieu of foreclosure. If you’re not familiar with deed-in-lieu of foreclosure, this is where you assign ownership of your house to the bank and in exchange the bank forgives your debt. In comparison, if you sell your home for less than what’s owed and the bank absorbs the loss it’s called a short sale. Of course, either way you end up losing your house. And your credit score will take it hit, which would make it harder for you to get a new mortgage.
Conspicuously absent
While the banks have promised under the agreement that they will provide $17 billion in principal reduction, this has been conspicuously absent so far. The idea behind this was that lenders would cut the mortgage principles of homeowners who were behind in their payments or who owed more on their mortgages than their homes were worth. This was to try to get the balances owed on the mortgage closer to the home’s value and help homeowners avoid foreclosure.
Unfortunately, so far there has been only about $1 billion in reductions on principal balances. In fact, only 7,093 homeowners have seen the principal on their first mortgages reduced for a total of $749,000,000. The rest was on second mortgages.
Chase has done the most
Of the five banks, the article said that Chase has modified first mortgages the most to the tune of $376,000,000. In comparison, Bank of America didn’t offer any modification claims on first mortgages between March and June of this year. But it has begun trial modifications of almost $2 billion that are proceeding through the process, which is more than any other bank.
What this could mean to you
If you are current on your mortgage payments but underwater, you should be happy to know that $3 billion of the settlement is to provide you with refinancing relief. If you are in this category and qualified, you should be able to refinance your mortgage and at a lower interest rate–even if you weren’t eligible to refinance before.
$17 billion of the settlement will be for principal reduction in loan modification for homeowners who need an immediate loan modification. According to one expert, some people are going to get a $20,000 reduction of their principle, which will be a fantastic gift. They should be able to refinance even if they were not previously in position to do this.
If you lost your home from foreclosure
If you are one of the 750,000 homeowners who had their homes foreclosed between January 1, 2008 and December 31, 2011, you should get a check for between $1,500-$2,000 that you could use to pay down debt or purchase a new home.
How to get your debts reduced
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