TheNicheReport.com -- In the U.S. District Court for the District of Columbia last week, the foreclosure settlement agreement and its proposed implementation were approved by federal judge Rosemary Collier. Her signature gives the green light for the five largest mortgage lenders in the country to begin the process of homeowner compensation and loss mitigation, to include reducing the principal amounts of potentially more than a million borrowers across the nation.
The judicial approval brings to an end a very disgraceful period for the following American lenders: Ally Financial, Bank of America, Citibank, JP Morgan Chase, and Wells Fargo. These banks were investigated by the attorney general offices of several states, as well as by the federal government, for robo-signing and other questionable practices in relation to their mortgage foreclosure operations. The terms of the settlement agreement include compensating homeowners who were wrongly evicted and borrowers whose principal loan amounts on their mortgages are higher than the value of their homes.
How Settlement Funds will be Distributed
The monetary value of the settlement is estimated at $26 billion. The bulk of the settlement, about $17 billion, will be used for mortgage loan modifications and principal amount write-downs. These modifications could benefit around a million borrowers stuck with mortgages that are $100,000 higher than the current value of their properties. Less than $4 billion will be used to help borrowers who are not delinquent on their monthly mortgage payments, but who could enjoy the current record-low mortgage interest rates.
The settlement agreement calls for banks to remit $5 billion to the states to be used for compensating those homeowners who lost their homes to improper foreclosures. They will each be compensated with payments of about $1,500 to $2,000.
The Modification Process Begins
At least three banks have opened their customer service lines to borrowers who have been following news of the settlement agreement. Bank of America, Citibank and Wells Fargo began taking telephone calls from borrowers in early March. None of the five banks were required to reach out to borrowers until the agreement was signed, but now they will have to begin the process. Some homeowners will receive a letter in the mail in the days to come.
Fannie and Freddie Borrowers Need not Apply
Mortgage loans guaranteed by the Federal Housing Administration (FHA), or the two government-sponsored mortgage enterprises Fannie Mae and Freddie Mac, will not qualify under the terms of the settlement agreement.
For the reason above, and the fact that the five banks in the settlement agreement are now free to resume their foreclosure operations after a year-long hiatus, analysts are expecting that a new wave of foreclosures will hit the market at the same time that the banks are involved in reducing principal amounts.