Federal regulators put the finishing touches on an $8.5 billion mortgage settlement with 10 of the nation’s largest lenders earlier this week, with the majority of the funds going towards delinquent homeowners in danger of losing their homes.
With the settlement, Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and others will contribute $5.2 billion to reduce the principal or the monthly payments of delinquent homeowners, with the remaining $3.3 billion going towards borrowers who were foreclosed upon in 2009 and 2010.
Mortgage Settlement Aimed at Rectifying Foreclosure Abuse
As the New York Times noted in a recent report, the settlement was initiated by government regulators in response to foreclosure abuse, in particular the “robo signing” scandals of 2010:
- In addition to the robo signing scandals, which involved banks filing foreclosures with incomplete and/or unreviewed documents, the settlement also stated that faulty paperwork and loan modifications may have led to wrongful evictions.
- Payments in the settlement will go to 3.8 million households, and range from a couple hundred dollars to as much as $125,000.
- Though the Federal Reserve has stated that the settlement “provides the greatest benefit to consumers subject to unsafe and unsound mortgage servicing and foreclosure practices,” the settlement does still have its critics, including Alys Cohen of the National Consumer Law Center, who told the Times that the initial reviews by the banks – had they been done correctly – would have outweighed the benefits of the settlement.
- Also, the $8.5 billion mortgage settlement is not the first time that lenders have collaborated to aid homeowners; nearly a year ago, the nation’s five largest mortgage servicers chipped in to a $26 billion settlement with 49 state attorneys general, and just this week Bank of America agreed to pay $3.6 billion to Fannie Mae for separate repurchase claims.
The Influence of the Mortgage Settlements on Homebuyers and Sellers
Aside from the direct benefits to homeowners, it’s also worth mentioning the more implicit (yet wide-ranging) benefits that come from such a settlement. Chris DeSanto, the owner of Realty Executives in Elmwood Park, said that such mortgage settlements are influential in shaping how homebuyers and sellers perceive the housing market.
“It benefits buyers and sellers to know the market has bottomed,” DeSanto said. “News like this always helps the situation when we’re working with clients.”