The five largest mortgage lenders in the nation have agreed to perform mortgage writedowns for customers as the result of the “robo signing” scandal. More than 1 million people whose mortgages are underwater will have their principals written down.
Part of huge settlement
During the height of the rash of foreclosures in the past few years, it came to light that a number of mortgage lenders and their employees had engaged in malfeasance, not least of which was “robo-signing” or basically rubber-stamping foreclosure paperwork without performing the due diligence or reading the forms. This led to a number of people who weren’t late on a payments losing their homes.
The government got involved and the five largest mortgage lenders, coincidentally five of the largest retail banks, all reached settlements involving penalties and agreements to recompense homeowners who were affected, according to USA Today. The biggest penalty was assessed on Bank of America, which was stuck with $11.8 billion in penalties and fines.
Part of the settlement includes Bank of America writing down the mortgage principal for 200,000 people who hold a mortgage from Bank of America or Countrywide.
1 million to get writedowns
In total, it is estimated that 1 million people whose homes are worth less than they owe on the mortgage, are going to have their mortgage principal reduced as a result of the robo-signing settlements. Four other banks were involved in the robo-signing probe and settlement: JPMorgan Chase, Citigroup, Ally Financial and Wells Fargo. All face similar penalties and are agreeing to similar terms.
Bank of America has agreed to a writedown of 100 percent, or in other words to reduce the principal amount of the mortgages involved down to the current market price for the homes. Chase, Ally, Citi and Wells are said, according to CNN, to be reducing principals for affected homeowners by up to 125 percent.
Some mortgages have a principal in excess of $1 million. Bank of America is estimating, according to the Los Angeles Times, that the average writedown will result in a reduction of $100,000.
Watch the letter box
Those homeowners whose mortgages are part of the settlement and are going to be given a writedown will be contacted by the institution that owns their mortgage.
In order to receive a writedown, according to CNN, the mortgage itself has to be owned by the bank or the bank has to be administrating the loan on behalf of a private investor; homeowners whose homes are owned by Freddie Mac, Fannie Mae or other government agency will not be eligible. Secondly, the mortgage has to have been at least 60 days delinquent as of Jan. 31 of this year.
The arrangement is pending court approval but will begin as soon as possible if approved. However, 10 million people will still hold underwater mortgages.