The $25 billion mortgage servicing settlement agreement was filed in federal court on March 12, according to the Justice Department, HUD, and 49 state attorneys. Five of the largest servicers in the nation – Bank of America, JP Morgan Chase, Wells Fargo, Citigroup, and Ally Financial – reached a settlement on February 9. Oklahoma was the only state to not take place in the agreement. Instead, the state’s Attorney General is choosing to pursue a separate settlement totaling $18.6 million.
The agreement made is to address faulty servicing practices and also deal with wrongful foreclosure issues. $20 billion in relief will go to homeowners in several forms, including principal reduction and to aid in refinancing loans that are currently underwater. The remaining $5 billion will go to government officials.
Among the standards being put into place are that servicers will no longer be able to foreclose on a borrower under current consideration for a loan modification. According to the settlement, a third-party monitor will oversee the implementation of these standards, and severe penalties will be incurred if the standards are not followed. A servicer can be fined $1 million per violation and even up to $5 million for repeated violations.
Although the settlement will certainly help millions of homeowners, critics question the agreement because it does not include Fannie Mae and Freddie Mac. Below are excerpts, including several “myths and facts”, from a statement released by HUD concerning the settlement:
Myth: The American taxpayers will subsidize the settlement.
Fact: There is a mistaken notion that there is a taxpayer subsidy because modifications performed under the Treasury’s HAMP program are not excluded from the settlement. HAMP pays incentives to encourage mortgage modifications. While those incentives occasionally include payments for reducing principal, most HAMP modifications do not include principal reduction. The settlement does not give any credit for these HAMP modifications. For HAMP modifications that do include principal reduction, servicers only receive credit for the portion of the principal reduction that they themselves pay for, not for the portion covered by incentives in the program. In no event can the servicer receive more under the settlement than it would have in the absence of HAMP incentives. Thus, there is no “double credit.”
Myth: This settlement is too meager to address the full impact of the housing crisis and the banks’ conduct.
Fact: This agreement does not – and is not intended to – solve or resolve all the issues and abuses related to the housing crisis. This settlement is primarily intended to address the servicing aspect of the crisis, which did not cause the housing crisis. Additionally, while the settlement was designed to provide immediate help to homeowners, banks are held to account and through this settlement will pay billions for their actions.
The full statement can be read here: http://blog.hud.gov/2012/03/12/myth-vs-fact-setting-the-record-straight-about-historic-mortgage-servicing-settlement/
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