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What Does The Foreclosure Settlement Mean For You?

On February 9, 2012 the State Attorneys General for 49 states entered into a $25 billion settlement with five of the Nation’s largest banks, Bank of America, Wells Fargo, Ally Financial, JP Morgan Chase and City Group. The purpose of the settlement is to end home foreclosure abuse stemming from robo-signing and to provide some relief to homeowners who are:
1. Delinquent and underwater
2. Underwater but current
3. Lost homes to foreclosure in the past 3 years.

The settlement covers 1.8 million homeowners nation wide. It is the largest consumer finance settlement in US history and is second in overall settlements only to the tobacco settlement in 1998, which was for $206 billion and covered 46 states.

Up to one million homeowners will have their debt reduced or will be able to refinance to lower their interest rate. Approximately 750,000 homeowners will receive about $2,000 each is they lost their home to foreclosure between January 1, 2008 and December 31, 2012 and can prove the loan was mishandled by the Bank. Many homeowners also will be eligible for principle reductions under this settlement.

Florida will get $8.4 billion of the $25 billion settlement.

However, this settlement does not apply to Fannie Mae or Freddie Mac loans, which account for 50% of all US mortgages

Homeowners will fall into the three categories listed above and may be eligible for the following relief:

1. Delinquent and underwater: $7.6 billion available to Florida and will be used to reduce the principle amount owed on homes for those who are behind in their mortgage and underwater. (Bank of America currently has a program for those homeowners who are 60 days behind and can show the ability to continue to make payments on reduced principle amount.)

2. Underwater but current: $308 million allocated to Florida to reduce interest rate to 5.25%: (higher than current market rates, but lower than interest rates at the bubble.)

3. Lost home to foreclosure between January 1, 2008 and December 31, 2013: Approximately $350 million will be divided among Florida homeowners who fit into this category and can show the bank mishandled their loan. The estimate is this will result in a cash payment of about $2,000 per homeowner in this category.

It is estimated to take between 30-60 days to select an administrator to manage and administer this settlement and another 6-9 months to identify homeowners who are eligible for principle reductions, refinancing or cash payments. Predictions range from between 8 months to 3 years as to when relief will actually become available. Lenders have 3 years to complete modifications under the settlement.

Because this settlement does not apply to Fannie Mae or Freddie Mac loans, and currently only encompasses the five banks identified it will not apply to all homeowners who seek relief. However, it is one of the few ways currently available for homeowners to reduce their principle and there is talk that the Attorneys General of several states also are pursuing a settlement with other banks.

Sherri K. DeWitt
DeWitt law Firm, P.A.
March 2012