The Federal government and 49 states have reached an agreement with five large mortgage lenders that will provide underwater homeowners with a modicum of relief and a second chance – and the national (and Philadelphia) real estate market a much-needed boost.
The agreement brings to end a massive investigation into foreclosure abuse launched by all 50 state attorneys general in 2010.
As reported by Bloomberg News, the $25 billion deal includes three main components. One is a $1.5 billion payment to some 750,000 borrowers who lost their homes to foreclosure – an amount that works out to about $2,000 per borrower. A second is a $17 billion fund that will cover debt forgiveness, forbearance, short sales and other forms of assistance for struggling homeowners. The third is a commitment to provide $3 billion towards refinancing of mortgages to lower interest rates.
The five lenders involved are the five largest in the country: Bank of America, JPMorgan, Wells Fargo, Citigroup and Ally Financial. Negotiaions continue with several other lenders; if all of those agree to the settlement, the total value of the deal to homeowners could go as high as $40 to $45 billion.
Oklahoma’s attorney general entered into a separate, $18.6 million settlement with the banks.
In a post on our sister blog a few weeks ago, we argued that some form of loan forgiveness would be necessary in order to clear up the foreclosure mess and give the housing market a real forward push. This agreement provides just that while preserving homeowners’ rights to seek legal redress for past abuses. Sounds like a win-win to us. Now let’s see how the market performs in the wake of the settlement.
-By Sandy Smith for PhiladelphiaRealEstate.com