According to Yahoo News.com, the largest joint state-federal settlement in history has taken place, and it regards the foreclosure situation that has been happening in America for the past couple of years.
The National Association of Attorneys General announced that the five largest mortgage servicers in the U.S. (JP Morgan & Chase & Co., Bank of America Corporation, Citigroup Inc., Wells Fargo & Co., and Ally Financial) agreed to pay a $25 billion judgment to settle an otherwise tedious investigation into illegal foreclosures.
The government launched the investigation in response to revelations that during the housing bust, many banks were relentless in their efforts to collect back payment on homes and in the process mishandled foreclosure paperwork, and thus illegally foreclosed on homes they had no right to foreclose on.
This deal could provide solace to close to 2 million homeowners, according to the New York Times, as well as provide an intentional universal remedy to the current housing market in the U.S. Additionally, experts say that this move will also give the stressed real estate and housing markets in the U.S. a push in the right direction.
Below are some major points in the deal:
All of the merchants included in the agreement must pay the 17 billion to homeowners in the form of principal reduction and other forms of relief mechanisms put in place to support homeowners.
This is because servicers may actually benefit from making modifications too many of the loans. Therefore, they will not receive 100 cents on a dollar; instead the $17 billion they owe, could actually end up costing them up to $32 billion. Servicers have up to 3 years to pay off this debt.
Refinancing for Underwater Homeowners
An underwater home is when a homeowner owes more on his mortgage than what the house is worth. Servicers agree to pay $3 billion to refinance these types of mortgages.
Limited Eligibility for Principal Reduction and Refinancing
Since only 20 percent of people applied for bank owned loans; the remaining loans were funded through other means, such as Fannie Mae and Freddie Mac, who purchased mortgages from other lenders. However, some experts say this is unfair because it should be left up to the banks to take responsibility for these loans. The agency states that mass principal deductions could end up costing the government sponsored agencies close to $100 billion.