COMMENTARY | As a foreclosure defense attorney, I have spent the last few days processing the Yahoo News report that the top five servicers of mortgages in the country reached a settlement in lawsuits filed against them by the U.S. Justice Department and all 50 States Attorney General. The suits were filed by the AGs for flaws and fraud in the foreclosure process by these servicers. I have reviewed the story carefully to see if it would help my clients any. The story of this settlement will stay fresh in people’s minds during this Great Recession that is almost four years old now. Five of the top banks in the country are involved in the settlement; they are Bank of America, Wells Fargo, Ally, Chase, and Citigroup. The total amount of payouts from the bank will total about $25 billion; the deal must still be approved by the courts to be binding. According to a website created to discuss the settlement, all states but Oklahoma are participating. Offended borrowers can still sue their lender or servicer for any action they have a case for. So how will this $25 billion be used and how much will this help homeowners?
$1.5 billion of the funds will go to borrowers that have already been foreclosed on. 750,000 borrowers will share these funds meaning that each borrower will get a measly $2,000 apiece. This seems to me to be a very small price for lenders to improperly foreclose. There are a lot more than 750,000 borrowers who are eligible for this payout and it will take as much as three years for borrowers to be identified for payments.
The 49 states that have participated in this settlement will get $3.5 billion. However, some of these states, including Missouri and Wisconsin according to the website of foreclosure defense attorney Jeff Barnes, will use their settlement proceeds to plug holes in their budget deficits and not to help suffering borrowers.
$3 billion will go to re-finance borrowers who are current in their payments, but owe more than their house is worth, “underwater.” The remaining $17 billion will be used for mortgage modifications, principal reductions, and “short sales” where properties will be sold for less than what is owed on the house mortgage. $20 billion, unfortunately, is a “drop in the bucket” to the trillions of dollars of equity that have been lost in this mortgage crisis. It will take months to identify potential borrowers for the programs and as many as three years for modifications to be finalized. This is not going to help my clients that are over two years into foreclosure cases with these lenders. It will not help many borrowers that are just starting foreclosure either. Also, this settlement does not help borrowers who have loans owed by Fannie Mae or Freddie Mac. Sadly, the banks have come out ahead again on the homeowner with this settlement. I fear his trend will continue.