THE LANDMARK MORTGAGE SETTLEMENT. What kind of relief will it offer?

Provided by Kevin Nast    In: Mortgage Refinance

22 Mar 2012

Big news, but will it make a big difference? On February 9, the Justice Department announced it had struck a settlement approaching $26 billion with the major U.S. mortgage servicers. This is the biggest multi-state settlement of any kind since the Big Tobacco payout of 1998, with five big banks () agreeing to make amends for robo-signing and other consumer abuses. Other lenders may join them in the deal.1,2

While this is all well and good, Housing and Urban Development Secretary Shaun Donovan conceded to the press on February 9 that the accord “doesn’t solve everything.” Indeed, with trillions of household wealth lost in the foreclosure crisis, even a settlement of this magnitude can seem relatively puny.3

Just 9% of homeowners will have mortgages modified. About $10 billion of the settlement will be used to rework home loans, but if your mortgage is owned by Fannie Mae or Freddie Mac, you’re out of luck; those loans aren’t included in the deal. Therefore, only about 1 million homeowners will get loan modifications out of the 11 million with underwater mortgages nationwide. These 1 million borrowers could see principal reductions of up to $20,000.1,2,3

What about cash payouts? About 750,000 borrowers who lost homes to foreclosure are in line for some monetary compensation: about $2,000 in cash each. To qualify, you must have lost your home sometime between January 1, 2008 and December 31, 2011. These payments will be sent out by state governments.2

Here’s a breakdown of how the settlement funds will be distributed:

  • $10 billion for principal reductions on underwater mortgages
  • $7 billion for “other forms of relief” (unspecified; could include short sales, neighborhood blight reduction efforts and principal forbearance)
  • $4.25 billion to 49 states (all except Oklahoma, which reached its own settlement with the five big mortgage servicers)
  • $3 billion toward refis of underwater mortgages
  • $1 billion to the Federal Housing Administration
  • $750 million in cash to the U.S. government2

On top of that $26 billion, Bank of America will pay out another $1 billion to settle a separate federal investigation into mortgage fraud at Countrywide Financial, which it bought in 2008.2

The settlement amount could approach $45 billion if other major mortgage servicers sign on to the agreement. That could presently happen.1

When do you find out if relief is coming your way? It will likely take you from 6-9 months to determine if you are eligible for any benefits from the settlement. The federal government says you will get a claims form if you are eligible to get some money as a result of all this. If you have any doubts that the claims form will reach you at your current address, you are directed to contact your state attorney general’s office.2

To learn more, you can visit, a new website providing yet more details.1

Kevin M. Nast is a financial advisor with Transamerica Financial Advisors, Inc. and may be reached at 248.347.1888 or

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.



1 – [2/9/12]

2 – [2/10/12]

3 – [2/10/12]

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