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49 states accept $25 billion foreclosure-abuse settlement

By Catholic Online (NEWS CONSORTIUM)
February 11th, 2012
Catholic Online (www.catholic.org)

Forty-nine states have accepted a $25 billion foreclosure-abuse settlement with the five largest mortgage lenders. While coming as welcome news to many, primarily those "underwater" in their mortgage payments, it only pays $2,000 to those already wrongly foreclosed upon.

LOS ANGELES, CA (Catholic Online) - The majority of the deal requires the banks to reduce some loans and refinance mortgages for underwater borrowers. Oklahoma was the only state holdout to the agreement.

President Obama hailed the agreement as a "landmark settlement" that would "begin to turn the page on an era of recklessness" while sending relief to strapped homeowners.

Under the agreement, five major banks, Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial will reduce loans for nearly one million households.

However, those who lost their homes to foreclosure are unlikely to get their homes back or benefit much financially from the settlement. For homeowners who were improperly foreclosed upon, the banks will cough up checks of $2,000 to about 750,000 Americans. The banks have three years to fulfill the terms of the deal.

Critics say the proposed deal doesn't go far enough, arguing for a thorough investigation of potentially illegal foreclosure practices before a settlement is hammered out.

The agreement was designed more toward homeowners who are struggling to make payments currently, who still have possession of their homes. The agreement requires the banks to commit a substantial amount of money toward changing loan terms.

At least $10 billion will go toward reducing the principal for borrowers who are delinquent or underwater borrowers at risk of default and at least $3 billion will go toward refinancing. Other payments will go toward state governments and the federal government to "repay public funds lost as a result of servicer misconduct," according to the Justice Department.

President Obama acknowledges that no single action would heal the housing market, but described the settlement as an important step that would address alleged abuses by mortgage lenders, such as using fake signatures in the foreclosure process.

"These practices were plainly irresponsible, and we refused to let them go unanswered," Obama said. 

Oklahoma, the lone state opposed to the agreement, will receive no money. That state's attorney general had opposed the massive fine included in the settlement, and reportedly was concerned the penalty went beyond the scope of the original investigation.

Attorney General Eric Holder said the deal would "hold mortgage servicers accountable for abusive practices."

During the financial and housing crisis, home values sank and millions of Americans edged toward foreclosure. Many companies processed foreclosures without verifying documents. Some employees signed papers they hadn't read or used fake signatures to speed foreclosures, in an action known as "robo-signing."

As part of the agreement, the 49 states have said they won't pursue civil charges related to these types of abuses. Homeowners can still sue lenders in civil court on their own, and federal and state authorities can pursue criminal charges.

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