HUD Secretary Shaun Donovan has announced a settlement that will get principal reductions for 1 million homeowners. Photo Credit: Obama Biden Presidential Transition Team/Wikimedia Commons/CC-BY-SA
The federal government and various states are still investigating and settling with mortgage companies over the “robo-signing” scandal. Up to 1 million people will have their principal reduced as a result of the settlement.
Shady foreclosure investigations ongoing
Various mortgage lenders and banks have been implicated in “robo-signing,” or the practice of rubber-stamping mortgages into foreclosure without the paperwork being reviewed.
[Many people cope with a high mortgage payment with a short term loan]
Five of the nation’s largest mortgage lenders have just reached a settlement with the federal government and an assortment of state attorneys general concerning such foreclosures, according to Fox Business. The settlement will result in about 1 million people having their mortgage principal reduced, aka written down, by their lenders. The exact number isn’t being disclosed, but it’s close to 1 million.
Fannie or Freddie backed loans ineligible
Department of Housing and Urban Development Secretary Shaun Donovan recently announced the settlement, an agreement between Ally Financial, Bank of America, Citigroup, Wells Fargo and JPMorgan Chase and federal and state authorities. The agreement is that the banks will write-down, or reduce, the principal on the mortgages of roughly 1 million people who have mortgages through Ally, B of A, Citi, JPMorgan Chase and Wells Fargo. The banks are also agreeing to compensate others harmed by malfeasant foreclosure practices.
According to Reuters, people whose loans are backed by federal mortgage insurers Freddie Mac and Fannie Mae are not eligible for the write-downs. Settlements with smaller lenders may be forthcoming, according to Bloomberg, as the government intends to concentrate on smaller lenders such as HSBC Bank, Suncorp Bank and others.
Millions still under water
Though a principal write-down is certainly a welcome sign, the past few years have left the housing market hobbled by billions of dollars in negative equity.
CoreLogic, according to Reuters, estimates that 22 percent of houses have negative equity, or the owners of the property owe more on the mortgage than the property is worth. Also referred to as underwater mortgages, CoreLogic estimates $750 billion in negative equity for the housing market in the U.S.
Fannie Mae and Freddie Mac, the independent government agencies, currently own the bulk of mortgages in the United States. Because the agencies are so heavily in debt, write-downs for Fannie and Freddie mortgage holders don’t seem likely.
Sources
Fox Business
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