Underwater Freddie or Fannie backed mortgage owners left to drown

Wednesday, March 14th, 2012 By

A clothesline

Homeowners with underwater mortgages backed by Freddie and Fannie are still hanging out to dry. Photo Credit: Adam63/Wikimedia Commons/CC-BY-SA

A select number of people are getting a mortgage write-down under the “robo-signing” settlement. However, those with mortgages backed by Fannie Mae or Freddie Mac are being hung out to dry.

Settlement pending approval

According to Reuters, the nation’s five largest mortgage lenders have agreed to settle a lawsuit brought by 49 states and the federal government over abusive foreclosure practices stemming from the past few years. The settlement is from the probe into “robo signing,” when banks initiate foreclosure proceedings on homeowners, some of which weren’t even behind on payments, aside from other malfeasance.

The total amount of the settlement is $25 billion, which only needs the federal judge overseeing the case to approve it to go forward. Of that amount, $20 billion is to be paid in the form of reducing loan principals and refinancing mortgages of homeowners affected by said practices and who hold underwater mortgages from those lenders. A further $5 billion is going to the 49 states in the suit, which will redistribute those funds to people who were foreclosed on between 2008 and 2011 due to “robo signing.”

Most troubled homeowners left out

The settlement, according to CNN, only is going to result in mortgage write-downs, or a reduced principal, for 1 million people. This leaves the bulk of mortgage holders in the United States that are underwater to twist in the wind.

The settlement only applies to people who hold mortgages owned by Bank of America and formerly through Countrywide, which was acquired by B of A, Wells Fargo, JPMorgan Chase, Ally Financial and Citigroup. Anyone holding a mortgage through Fannie Mae and Freddie Mac is not eligible, as are troubled homeowners whose mortgage is owned or backed by the Federal Housing Administration.

[No amount of short term loans can help with negative equity]

Many homeowners whose homes are underwater or in other words owe more than the home is worth, which is called negative equity, aren’t thrilled about the exclusivity of the principal reductions. Fannie and Freddie currently own roughly half of all mortgages currently held in the nation.

Fewer than 10 percent of homeowners to benefit

On top of helping a limited number of people, the Office of the Comptroller of the Currency is also cutting the banks a sweet deal, according to the Los Angeles Times. By performing the write-downs and refinances, the OCC is forgiving $394 million in fines that would have been assessed for negligent foreclosure practices.

The “robo signing” settlement is less than 10 percent of underwater homeowners in America, as write-downs will be performed by those five lenders for roughly 1 million people.

Currently, according to MSNBC, 11.1 million homes are in negative equity, and Fannie and Freddie are not in a position to do anything about them financially. That accounts for 22.8 percent of mortgaged homes in America.

Sources

Reuters

CNN

MSNBC

Los Angeles Times: http://www.latimes.com/business/realestate/la-fi-hiltzik-20120307,0,246162.column

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