Robo-signing settlement includes mortgage writedowns for 1 million

Friday, March 9th, 2012 By

B of A branch

Bank of America, along with the other four largest mortgage lenders, are performing mortgage writedowns for 1 million people. Photo Credit: MoneyBlogNewz/Flickr/CC-BY

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.

[There are plenty of options for people who want bad credit loans but not payday loans]

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.

Sources

USA Today

CNN

Los Angeles Times

Previous Article

« Why your emergency fund needs to be bigger

Saving money in tight times has never been easy. With the current recession, though, saving a larger emergency fund is more important than ever. Why an emergency fund is important Financial planners all over the world have one piece of advice that is universally agreed upon: Have an emergency fund. An emergency [...] Piggy Bank
Next Article

Understanding the true value of a family legacy »

Cash and other tangible assets aren’t the only things we can leave to our descendants. There are forms of non-economic inheritance that are perhaps even more important, notes Bankrate. Preserving memories through a family legacy project is a vital form of cultural inheritance that gives life rich shades of added [...] Sunset photo of a family at White Sands, New Mexico.