There are four things you need to know about the mortgage settlement:
#1) The mortgage settlement isn’t finalized, but nobody seems to care about that, so lets move on to the next point.
#2) What does the settlement mean?
#3) Are you a candidate to participate in the settlement?
#4) What are you supposed to do?
What Does The Settlement Mean?
The settlement is a $26 billion pact between Wells Fargo & Co , J.P. Morgan, Bank of America Corp., Citigroup Inc., Ally Financial Inc., and the government.
The government is accusing these banks of improperly foreclosing on homeowners during the housing crisis. So now the banks are ponying up $26 billion to help these homeowners, kind of.
Are You A Candidate To Participate In The Settlement?
Figure out which group you’re in and ignore the other groups.
- Group #1 – If the value of your home is less than the amount you owe on your mortgage (a.k.a it’s “underwater”), and you haven’t missed a mortgage payment, AND one of the banks listed above owns your mortgage, you might be eligible to refinance your mortgage at a lower interest rate.
If you don’t know the value of your home, get an appraisal, which costs about $500, or ask a realtor to come over and do the analysis for you. Having a realtor come over is cheaper but less precise.
If you don’t know who owns your mortgage, call your lender and ask them. My “lender” servicing my mortgage is Wells Fargo, but Fannie Mae “owns” my mortgage. Fannie Mae isn’t participating in the settlement so I’m out of luck .
- Group #2 – If you’ve missed a mortgage payment AND one of the banks above owns your mortgage (or maybe it was packaged and resold to an investor, again, ask your lender), you might be eligible to have your lender reduce the amount you owe on your mortgage. This is a “principal reduction.”
Yes, like a bad boyfriend, some of the money you owe on your mortgage will just, well, go away. It’s cheaper for banks to write-off some of your mortgage than for them to foreclose on you entirely, which you’re probably pretty close to doing if you’re already not making payments.
- Group #3 – If your bank improperly foreclosed on you between September 2008 and December 2011, you might be eligible for a payment of $1,500 – $2,000.
Lucky you. Not really. If you were improperly foreclosed on, I’d say the damage to you is a lot more than the cost of a new laptop.
- Group #4 – If the value of your home isn’t less than the value of your mortgage (this is good), and if you haven’t missed any payments, you are eligible for a pat on the back.
What Are You Supposed To Do If You’re In Groups #1 – #3?
Don’t call them, your bank will call you. The banks have three years to settle these mortgages.
Why This (Non-Finalized) Mortgage Settlement Is A Big Waste Of Ink
Most homeowners can’t participate – Fannie Mae and Freddie Mac own over half of all mortgages (including mine). Part of the criteria for groups #1 – #3 is that one of the banks listed above must own your mortgage.
The math is just stupid – There are more than 10 million homeowners who fit in group #2, the “underwater” group whose homes are worth less than their mortgage, according to CoreLogic (via CNN). They are underwater by about $60,000 on average.
If banks pony up say, $20 billion, that means they’d only be giving about $20,000 to 1 million homeowners. Is Dean Baker, the co-director of the Center for Economic and Policy Research the only one who did the math? Clearly.
Your 401(k) loses in this deal, and banks win - I’ll explain that in my next post. Banks aren’t “giving” anywhere near $20 billion. You are.
Happy Valentines Day!
Obama to Use Pension Funds of Ordinary Americans to Pay for Bank Mortgage “Settlement” (naked capitalism)
Mortgage Settlement Lets Banks Off The Hook, Again (CNN)
Mortgage deal is great – for politicians and banks (LA Times)
I don’t suppose the banks will be borrowing this twenty billion or so at zero or near-zero interest rates from the Fed, and buying treasuries with it, all the while stringing the settlements along? When the banks and their lobbyists write the legislation, small chance that they’ll end up being the ones holding the soiled end of the stick.
Yes this is a win for the banks, a lose for the economy (since this program won’t do anything –it’s a drop in the bucket), and a potential lose for MBS investors (indirectly me and you if we have any exposure to MBS in our bond funds, one of my bond funds has about 40% in MBS).
Remember Harp II last october? Yeah, me neither.