What the Federal Settlement of Foreclosure Misconduct Means to You

OVERVIEW OF OUTCOME

After ten months of intensive negotiations between the nations five largest banks and a coalition of state attorneys general and federal housing agencies, a settlement resulting in approximately $25 billion dollars in monetary sanctions and relief has been reached.

The settlement hopes to help hundreds of thousands of distressed homeowners remain in their homes through enhanced loan modifications and provide payments to victims of unfair foreclosure practices.

In addition, the settlement mandates mortgage loan servicing reform covering all aspects of mortgage servicing, from consumer response to foreclosure documentation. To ensure that the banks meet the new standards, the settlement will be recorded and enforceable as a court judgment. Compliance will be overseen by an independent monitor who will report to the attorneys general and the court.

IMPLEMENTATION

Timelines for implementation are 30 – 60 days from the settlement agreement. Within 6 to 9 months, qualifying homeowners will be identified and notified by mail. Other resources will also be made available, such as www.nationalmortgagesettlement.com for individuals to see if they qualify. Incentives have been built into the settlement for banks to meet the terms of the settlement within one year.

FORECLOSURE PROCESS TO REV UP AGAIN

Immediate implications to the settlement will be swift. Foreclosures will go on the rise once again. If you, or someone you know, has been living in your property for years without paying, that will soon change. With this settlement, the roadblocks have been removed and lenders, who once had trepidation or hesitancy, will now move forward, full speed ahead to foreclosure.

To prevent this, the settlement gives incentives to the banks to seek other alternatives to foreclosures. But the borrower must connect with the lender sooner rather than later. The lender needs to know that you are interested in a workout program (loan modification, short sale, deed-in-lieu, forbearance, etc). It is when they don’t hear from you that they will now fast track your foreclosure without delay.

PRINCIPLE REDUCTIONS POSSIBLE?

There had previously been some talk about principle reduction. The bottom line to that is that banks aren’t going to do principle reductions when they can only make fifteen cents on the dollar, and they can get more in a short sale or foreclosure.

Nine smaller banks have pending settlements which we will hear from soon, but for now, the settlement only applies to Bank of America, Citigroup, JP Morgan Chase, Wells Fargo, and Ally Financial. Industry insiders are hopeful that terms similar to this settlement may eventually either become legislation and mandated for all banks or will become “best practices” .

BOTTOM LINE

The foreclosure timeline will decrease – gone are the days of living in your defaulted property longer than the state allowed time. Lenders are now prepared to foreclose faster. Due to the terms of the settlement, many problems have now been removed from the system.

If you have been pondering what to do with your home, contact a HUD counselor or qualified short sale specialist to get started on a workout program as soon as possible, don’t delay.

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