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Borrower’s Guide to Mortgage Settlement

February 23, 2012

Thanks to Ronald D. Orol of MarketWatch for this info on the recent settlement.

The record $26 billion foreclosure-abuse settlement that states and the Obama administration reached last week with five big banks is being billed as a program that will help more than 1 million U.S. homeowners.

The funds are being allocated to a number of different programs and it is not clear who will get relief — or when. Housing counselors said borrowers likely won’t begin receiving compensation or other forms of assistance until this summer at the earliest.

Here are answers to some common questions about the program.

Q. There will be about $17 billion available to reduce mortgage-loan debt for struggling homeowners. How do I know whether I will be eligible for this principal-reduction assistance?

A. Borrowers who are delinquent or on the verge of delinquency and have loans that are on the books of one of the five participating banks are the likeliest to be eligible for help cutting the size of their mortgage, known as principal reduction. These borrowers must show they are behind on their payments.

Eligible homeowners must have loans serviced by the five big banks participating in the settlement: Bank of America , J.P. Morgan Chase & Co.,  Citigroup, Wells Fargo & Co., and Ally Financial Inc, the company formerly known as GMAC.

Borrowers who have loans owned by investors also may be eligible but to a lesser degree.

Homeowners whose mortgage loans are owned by Fannie Mae and Freddie Mac — the two government-seized mortgage giants that own about 50% of all U.S. mortgages — are not eligible to participate in the principal-reduction program. Neither are homeowners in Oklahoma since the state did not take part in the deal. Get more information from NationalMortgageSettlement.com .

Q. If I am behind on my mortgage payments, what should I do to find out whether I am eligible for any relief?

A. Regulators say that borrowers will be contacted by their mortgage servicer, a state local administrator or their state attorney general in coming months.

But troubled homeowners should also contact a U.S. Department of Housing and Urban Development certified housing counselor in their area to obtain free help in identifying whether they are eligible to receive relief on the amount they owe on their mortgage. Find a local HUD-approved housing counseling agency.

Housing counselors and state attorneys general also suggest contacting your bank immediately to make sure they are aware of your grievances.

Q: If I am current on my mortgage payments but have little or no equity in my home, whom do I contact to see if I can receive assistance to refinance my loan at current low interest rates?

A. If you’re in this situation, your mortgage servicer may contact you in coming months. But housing counselors also suggest that “underwater” borrowers — those who owe more than their home is worth — should contact their bank and local state attorney general’s office for more information.

Q. If my mortgage is serviced by a lender that is not one of the five participating in the settlement, can I participate?

A. The Justice Department and other regulators are currently in discussions with nine other mortgage servicers and say they hope to reach a settlement over problematic foreclosure practices in the coming weeks. Keep an eye out for statements from your local attorney general’s office to see if this deal is announced.

Q. Roughly $1.5 billion in funds is being allocated to borrowers who have lost their homes and experienced mortgage servicing abuse. Regulators estimate that borrowers could receive about $2,000 each if 750,000 people are deemed eligible. If I have lost my home to foreclosure and feel that I have experienced servicer abuse, how can I apply?

A. Borrowers who lost their homes between January 2008 and December 2011 can apply. In a few months, potentially eligible consumers should receive a notification from a settlement administrator or their state attorney general. The spokesman for Iowa Attorney General Tom Miller said consumers will probably fill out a fairly simple form that verifies certain facts, and they’ll have to attest that they were subjected to some form of servicing abuse.

Borrowers in any stage of foreclosure in 2009 or 2010 may also be eligible for compensation or some other remediation (such as getting your home back from bank inventory) as part of a separate regulatory enforcement action against a number of banks. Regulators say borrowers who have been foreclosed upon can apply and possibly receive help through both processes. So far, no borrower has received assistance through this approach, but regulators expect assistance to go out by the end of 2012.

Q. Another $2.75 billion is being paid to states to fund legal aid, housing counselors and other programs. Can I receive help this way?

A. Money going to housing counselors and legal aid may help borrowers indirectly. But keep in mind that states have some leeway in how to use the funds.

For example, Ohio’s attorney general estimates that $97 million of funds going to the state will be used to conduct foreclosure prevention and neighborhood revitalization programs. However, Wisconsin and Missouri reportedly are planning to use a large part of their settlement funds to help balance their state budgets, rather than directly helping borrowers.

 

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