$25 Billion “Robo-Signing” Settlement: What’s it Mean to You?

Last week, federal and state authorities (49 of 50 states) reached a settlement with five of the major banks (Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial) in what amounts to a “mea culpa” admission from the entities in exchange for immunity from further prosecution. “Robo-signing” of foreclosures occurred the bank level by some of largest banks. Instead of doing their due diligence, the banks had been green-lighting foreclosures without reviewing the appropriate paperwork.  Employees have admitted sending through between 8,000 and 10,000 foreclosure packets per month without even looking at them because of the immense volume.

There are several positive outcomes from this measure. Firstly, the deal includes some $17 Billion in principal relief for distressed homeowners. That sounds nice until you consider that there is nearly 40 times that amount in negative equity nationwide.

Secondly, the deal puts more accountability on the loan modification process.  Previously, the homeowner had been a the mercy of the lender with regard to outcome, turn times and progress of the modification; this reform calls for transparency in the loan modification process.

A third tenant of this deal is that lenders can’t practice “dual-tracking” which is a process by which banks simultaneously pursue foreclosure while in the modification evaluation process.

Another “good thing” about this is that it will likely free up lenders to foreclose on properties in cases in which foreclosure is unavoidable. Clearing the legal pathway is essential for the housing market to reach an equilibrium and return to a normal state.  The foreclosure inventory has been artificially down because of the the “foreclosure-gate,” the alleged mishandling of foreclosure paperwork.  This settlement will help free up the questions of about the legality of foreclosing due to the MERS fiasco and robo-signing.

So how do you get your hands on the approximate $12-Billion of the $17-Billion in relief slated for the state of California?  You need to call your servicer, and do it quickly.  Banks have been incentivized to make these concessions in the first 12 months of the deal’s signing.  No doubt, this is a tenant that the Obama administration pushed for in order to curry favor with the public on the upcoming election.

Your first stop to see if you qualify for any of those monies should be http://nationalmortgagesettlement.com/.  According to the website, there are three main areas of help:

1. Homeowners needing loan modifications now

, including first and second lien principal reduction.  The servicers are required to work off up to $17 billion in principal reduction and other forms of loan modification relief nationwide.State attorneys general anticipate the settlement’s requirement for principal reduction will show other lenders that principal reduction is one effective tool in combating foreclosure and that it will not lead to widespread defaults by borrowers who really can afford to pay.

2. Borrowers who are current, but underwater.  Borrowers will be able to refinance at today’s historically low interest rates.  Servicers will have to provide up to $3 billion in refinancing relief nationwide.
3. Borrowers who lost their homes to foreclosure with no requirement to prove financial harm and without having to release private claims against the servicers or the right to participate in the OCC review process.  $1.5 billion will be distributed nationwide to some 750,000 borrowers.

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