$8.4 billion from foreclosure settlement to help Florida homeowners

News  •  Feb 09, 2012 21:40 EST

By KIMBERLY MILLER

Palm Beach Post Staff Writer

Updated: 9:40 p.m. Thursday, Feb. 9, 2012

Posted: 9:35 p.m. Thursday, Feb. 9, 2012

Tens of thousands of Floridians will benefit from $8.4 billion in cash and mortgage relief slated for the state as the nation's five largest banks atone for years of foreclosure-related offenses.

The unprecedented agreement, the final terms of which were settled just hours before Thursday's announcement, will reduce loan amounts, help underwater homeowners refinance into lower interest rates and give small cash payouts to people who lost their homes in flawed foreclosures.

Nationally, the $25 billion deal could provide up to $40 billion in cash, refinances and principal write-downs to homeowners. An additional $1 billion settlement was reached with Bank of America and Countrywide for fraudulent loan practices.

The banks included in the settlement are JPMorgan Chase, Wells Fargo, Citigroup, Bank of America and Ally Financial. Loans held by federal mortgage backers Fannie Mae and Freddie Mac are not included.

Florida Attorney General Pam Bondi, a lead negotiator on the deal, was a holdout in finalizing what is considered the largest joint state and federal settlement in U.S. history. Every state except Oklahoma signed the agreement.

Florida's share of the settlement is second only to California.

Bondi was mostly mum during the more than yearlong investigation into the mortgage servicing industry and subsequent settlement. And while several federal officials, including President Obama, upbraided bank wrongdoing on Thursday, she remained reserved in her statement.

"This settlement will provide substantial relief to struggling Florida home­owners, and ensures that our state gets its fair share of the relief being provided nationally," she said.

Florida's share of the deal includes an estimated $7.6 billion in benefits to homeowners in the form of loan modifications, principal reductions, short sales, and moving assistance for people who can't stay in their homes.

About $170 million will be cash payments to Florida borrowers who lost their home to foreclosure between 2008 and 2011 and suffered servicer abuse. Nationally, those checks are expected to total between $1,500 and $2,000 each.

Refinanced loans to Florida's underwater borrowers who are current on their loans would be worth an estimated $309 million.

The state also will receive a payment of $350 million.

Banks are supposed to notify borrowers if they are eligible for a piece of the settlement. Homeowners also can contact their servicer for information.

"In many cases, (servicers) didn't even verify that these foreclosures were actually legitimate," Obama said Thursday. "Some of the people they hired to process foreclosures used faked signatures on fake documents to speed up the foreclosure process."

Delray Beach home­owner James Hirschfeld, 50, says that he is a victim of notary fraud, that his loan modification was canceled because of a bank error and that he was mistreated in a foreclosure handled by the defunct Law Offices of David J. Stern.

Hirschfeld knows he's partly to blame for his predicament. He took equity out of his home during the boom to pay for repairs and improvements and is now tens of thousands of dollars underwater.

"But the bank is making mistakes and committing notary fraud, and I want someone in jail," he said Thursday. "I kept trying to pay my bill. I want to stay in my home."

The settlement does not grant criminal immunity to banks.

Mike Heid, president of Wells Fargo Home Mortgage, said the agreement "represents a very important step toward restoring confidence in mortgage servicing and stability in the housing market."

Still, in hard-hit Florida, where 12 percent of the mortgages are in foreclosure, the deal is receiving a lukewarm welcome from some.

Roy Oppenheim, a foreclosure defense attorney with Oppenheim Law in Weston, said the banks are taking only a $5 billion hit nationally with the cash payment owed to the states and federal government.

The other parts of the agreement - principal reductions, short sales and loan modifications - are things they would have had to do anyway to avoid having more foreclosures on their books, he said.

"This is a $5 billion settlement being called a $26 billion settlement," he said. "They were going to lose that money no matter what."

The settlement needs approval from a federal judge. Within days of that approval, servicers will be required to cut checks to the states for the $5 billion.

Overall, the settlement will span three years, but there are incentives for servicers to provide relief quickly. Those that don't reach 75 percent of their targets within the first two years will be fined.

"Obviously, the banks recognize that they have to be accountable for a lot of this mess," said Fort Lauderdale-based attorney Alan Kipnis, who represents banks in foreclosure cases. "Clearly, this does not absolve the bank of criminal wrongdoing, but it starts the ball rolling for people to start getting their lives back together."

The Associated Press contributed to this story.

Q&A: The mortgage settlement deal

Q: Who stands to benefit?

A: Most of the money will go to ?homeowners who are “underwater.” That means they owe more on their loan than their home is worth. Many are struggling to make their payments and are at risk of foreclosure. Yet because they have no home equity, they've been unable to refinance into a lower-rate loan. About 1 million underwater homeowners will see their loan principal reduced by an average of $20,000. But more than 90 percent of underwater homeowners won't be helped. Some, however, might be eligible to refinance at 5.25 percent.

Q: How might the settlement help people avoid foreclosures?

A: It requires that banks make foreclosure a last resort. And it bars lenders from foreclosing on a homeowner who is being considered for a loan modification.

Q: How will the deal help those who unfairly lost their home to foreclosure due to robo-signing?

A: Roughly 750,000 households could get checks for $2,000 if they lost their homes between 2008 and 2011.

Q: Who's eligible for relief?

A: Those whose loans are owned or guaranteed by private lenders. Roughly half the mortgages in the United States — about 30 million loans — are owned by private lenders. The other half are owned by government-controlled mortgage giants Fannie Mae and Freddie Mac. Homeowners with these mortgages aren't eligible.

Q: Which lenders are affected?

* Ally/GMAC: (800) 766-4622

* Bank of America: (877) 488-7814

* Citi: (866) 272-4749

* JPMorgan Chase: (866) 372-6901

* Wells Fargo: (800) 288-3212

Q: How will I know whether this settlement affects me?

A: Borrowers will not immediately know if they are eligible.

Borrowers who are eligible for loan modifications and refinancing may be contacted directly by one of the five mortgage servicers.

Eligible borrowers who lost their home to foreclosure between 2008 and 2011 can expect to receive a claim form in the mail.

Even if you are not contacted, if your loan is serviced by one of the five settling banks, you are encouraged to contact your servicer to see if you are eligible.

Q: What is the payment breakdown?

A: Of the five major lenders, Bank of America will pay the most to borrowers: nearly $8.6 billion. Wells Fargo will pay about $4.3 billion, JPMorgan Chase roughly $4.2 billion, Citigroup about $1.8 billion and Ally Financial $200 million. The banks also will pay state and federal governments about $5.5 billion.

Q: Will homeowners and states still be able to take action against lenders?

A: Homeowners who get checks will not lose their rights to sue lenders in court. And states will still be able to criminally charge lenders and servicers that engaged in deceptive or illegal foreclosure practices.

Q: Could the settlement help repair the troubled housing market?

A: Possibly, but only in the long run. Banks will likely process foreclosures faster now that a deal has been finalized. Foreclosure filings have slowed because of backlogged courts, judges skeptical of foreclosure documents and lenders awaiting a final government-backed deal. “If it helps 1 million homeowners over the next few years, it should help housing prices stabilize and start rising again,” said Mark Zandi, economist at Moody's Analytics.

Q: Is the settlement fair?

A: The deal forces the five largest mortgage lenders to reduce loans or send checks to nearly 2 million American households. But considering the range and depth of the U.S. housing crisis, the payout amounts to small change for the banks. And only a fraction of people who likely need help will get it.

Q: Why not sue the banks and try to get even more money?

A: Government officials said that litigation takes time, it carries risks, and it expends resources. And a money judgment would not include principal reduction or refinancing for underwater borrowers, they say.

Q: Who will enforce the terms of the deal?

A: North Carolina's banking commissioner, Joseph A. Smith Jr., will monitor enforcement. Lenders that violate the deal could face $1 million penalties per violation and up to $5 million for repeat violators.

— Staff and wire reports

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