Federal and state officials have reached a $26 billion foreclosure settlement with Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial, five of the nation’s largest banks. The settlement is the largest deal reached to alleviate the damage caused by the housing market crash, and could provide relief to nearly two million current and former homeowners affected by the crash.
Under the terms of the settlement, $17 billion will be earmarked for homeowner relief and will be paid over a three year period. $5 billion will go in cash payments to states and federal authorities, $3 billion will be set aside for refinancing and $1 million will be sent to the Federal Housing Administration.
Although officials claim that the $17 billion will provide relief for up to 1 million homeowners, it is unlikely to help such a large portion of delinquent borrowers. Considering that many homeowners owe more than $17,000.00, the number of borrowers receiving settlement money will have to be cut in order for them to receive substantial help.
Officials also say that the $3 billion earmarked for refinancing up to 750,000 borrowers who are current on their mortgage payments will be able to refinance their current loans at lower rates, leading to savings on their monthly payments.
The settlement funds will be distributed by the banks using a formula that allows varying degrees of credit depending on the type of assistance needed. Under the formula, banks are incentivized to help the hardest-hit borrowers.
If more banks participate in the settlement negotiations, the settlement amount could potentially jump to as high as $39 million. However, mortgages owned by government housing finance agencies will not be covered by the settlement, excluding half of the nation’s mortgages.
The settlement also permits regulators and prosecutors to investigate elements that may have contributed to the housing market crash, and allows officials to pursue allegations of criminal wrongdoing.
Author(s): Brooke P. Dolara
