Understanding the National Mortgage Settlement Act
Understanding theNational Mortgage Settlement ActBy: Scott Potter, Attorney at Law
ABOUT JACKSONWHITEWe offer a full range of legalservices to assist individuals,families, and businesses.JacksonWhite was founded in1983.The firm has grown steadilyto include 24 highlyexperienced attorneys.We are proud to be one of thelargest law firms in the EastValley.
SCOTT L. POTTERForeclosures, Real Property Interests, Title Claims
How Did We End Up Here?2000 – Stock Market Crash: Dollars shift from stock market to housing.Financial innovation = new lending types: interest only loans, zero down loans, interestadjustable loans. Banks quickly securitize then pass risk to someone else.2003-2007: Subprime loans increase from 332 billion to 1.3 trillion2006 – Housing Market Peak2007 – Housing Market Crash2008 – Senate passes $700 billion bailout plan; fedannounces will provide $900 billion in short-termloans to banks.By 2008, 3 million foreclosures. AZ rate is 4%.Over 3 million foreclosures in 2009 alone.Amid concerns from consumers about lostpaperwork, missed deadline, and long delays, the 2013: number of foreclosures instate attorneys general launched an investigation in AZ decreased by 56.2 %; theOctober 2010. The National Mortgage Settlement is a first time since housing marketresult of that investigation. crash, our rate is out of the top four.
What is the National Mortgage Settlement Act?February 2012, federal government and 49 state attorneys general announcesettlement.Settlement will provide $25 billion in relief to distressed borrowers anddirect payments to states and federal government.Arizona will get over $1.3 billion.Holds banks accountable for wrongdoings on mortgage servicing and robo-signing.2nd largest consumer financial protection settlement in U.S. history.
The Banks These 5 banks control an estimated 60% of the mortgage servicing market.
What About GSEs?Government-sponsored enterprises (GSEs), Fannie Mae and FreddieMac, are not eligible for parts of this settlement because of theposition that the Federal Housing Finance Administrator has taken.Homeowners with GSE-controlled mortgages will not directly benefitfrom this settlement but they will see benefits through stabilizinghome values, new mortgage servicing standards, and reducedforeclosures.
Key Provisions of the Act1. Homeowners needing immediate loan modifications2. Borrowers whose mortgages exceed value of home3. Borrowers who lost home to foreclosure4. Nationwide reforms to bank servicing standards5. Payments to signing states6. Attorney General oversight
What Loans are Covered? The settlement focuses on principal reduction, aimed at forgiving portions of some loans to stabilize the housing market. Some investor-owned loans are affected, depending on the existing agreements between the servicers and the investors.Foreclosed Homeowners are eligible for payment ifthey meet the following criteria:• Loan foreclosed between1/1/08 & 12/31/11• Loan serviced by 1 of 5 mortgage servicers• Borrower made at least 3 payments on loan• Borrower lived in or intended to live in property at time of loan origination• Property was 1-4 unit residential property• Unpaid principal balance of first-lien mortgage did not exceed $729,750 for a 1 unit property; $934,200 for 2 unit; $1,129,250 for 3 unit; or $1,403,400 for 4 unit.
Homeowners Needing Immediate Loan ModificationsHome owners who need loan modifications.1st & 2nd lien principal reduction.Banks are required to work off $17 billion in principal reduction(among other forms of loan modification) across the country.
“Underwater” BorrowersBorrowers whose mortgages exceed the value of their homes will beable to refinance at present interest rates, even if they are current ontheir payments.Banks will be required to provide $3 billion in refinancing relief.
Borrowers Who Lost Home to ForeclosureBorrowers who lost their homes between January 1, 2008 andDecember 31, 2011 will be eligible to receive payments if their loanswere serviced by one of the 5 involved banks.Banks will pay $1.5 billion to approximately 2 million eligibleborrowers. The minimum payout is $840 (checks are expected toexceed this).
Claim FormBorrowers who lost their home to foreclosure between Jan. 1, 2008 andDec. 31, 2011 and whose loans were serviced by one of the fiveparticipating mortgage servicers, have received a Notice Letter or ClaimForm from the National Mortgage Settlement Administrator.Claim forms were sent to eligible borrowers Sep 2012. Deadline to submitform has passed for foreclosure victims. Checks are expected to mail mid-summer of 2013.
Nationwide Reforms to Servicing Standards• See all loan documents to ensure legality of potential foreclosure• Opportunity to modify loans before foreclosure• More, well-trained staff & prompt responses• Single-point of contact
Payments to Signing StatesSigning states will receive payments to help fund state foreclosure protectionefforts and consumer protection.
What Happens if the Banks Don’t Comply?Attorney General Oversight:Banks will be required to report compliance to independentmonitors, and will pay fines and suffer significant penalties for non-compliance.Monitors will follow strict set of objective measuring standards andwill oversee the carrying out of the settlement.
The Act Does Not:• Release private claims by individuals, class action claims, or claims against Mortgage Electronic Registration Systems• Release criminal liability or grant criminal immunity• Include the state of Oklahoma• End state attorneys general investigations of Wall Street related to financial fraud• Address the banks failure to properly securitize loans; the state attorneys general have released claims on these matters to instead focus on obtaining release for homeowners, not hedge fund investors
Is it Working?Between March and December of 2012, over 550,000 homeowners receivedalmost $46 billion in consumer relief, with roughly $82,000 in averagebenefits.$300 billion allocated to housing counseling & legal aid for borrowers.Banks have provided over $22.5 billion in principal reduction, loweringmonthly payments on 266,000 loans.Total consumer relief is expected to grow to over $50 billion.