Nearly two years ago the State’s Attorneys General across the country along with Federal Officials collectively began to investigate the largest lenders regarding the foreclosure practices of the banks. This led to the “Robo-Signer Scandal”, the discovery that many lenders were just ramming foreclosures through with falsified and fraudulent documentation.

In response, the Attorneys General of many States filed lawsuits against the five largest banks:  Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial (formerly GMAC). Yesterday they reached a Settlement. Although the details of the Settlement are still being worked out, here is what we know so far:

1.  The Banks will pay $25 Billion - While this sounds like a large amount of money, the allocation of these funds to solving the nation’s housing problems will be what matters. Here are the designated allocations:

(1)   $10 Billion for Loan Modifications & Principal Reduction for up to 1 Million Homeowners - if evenly allocated, this would provide at best a principal reduction of $10,000 per homeowner. California will receive $430 Million of these funds. But with California alone having 2 million homeowners upside-down an average of $50,000 or more, this is unlikely to enable very many people to keep their homes.

(2)   $3 Billion for Refinancing of Loans - for those who can qualify for loan refinancing, these funds will effectively result in principal reduction of existing balances. It is unclear how this will be handled.

(3)   $1.5 Billion for People who were by Robo-Signer Foreclosure Abuse - this fund will provide a payment on $2,000 to up to 750,000 homeowners who were improperly foreclosed upon.

(4)   $10.5 Billion to the States and Federal Government - the highest portion of Settlement funds will go to Government agencies – not homeowners – to compensate for loss of public funds related to servicer misconduct. It is unclear what these “losses” are but they may include loss of property tax revenue, legal costs, public housing, etc.

2.  The Settlement Does Not Apply to Loans Owned by FNMA and Freddie Mac - These two Government Sponsored Agencies (GSE’s) agencies now own approx. 50% of all loans in the U.S. and up to 80% of all the subprime loans that are in the most trouble. This Settlement will provide no help for these homeowners. Even though FNMA is under a Government Conservatorship, FNMA actively opposes any principal reduction of its loans.

3.  The Settlement Money will NOT be Available Immediately - While the website touting the Settlement talks about “Immediate Aid” and “Immediate Payments”, that will not be the case. It will be 30-60 days before anyone is designated to Administer the Settlement and start working out the details. After that, it will be 6-9 months to somehow identify those homeowners who were affected by the lending abuses and contact them with details on how they might apply for benefits through the Settlement.  The Banks have 3 years to perform their obligations in paying the Settlement Money.

4.  The Banks Will Gain Immunity from Government Prosecution for Robo-Signer Abuse - The biggest beneficiary of the Settlement may well be the Banks who for a relatively small sum of $25 Billion (they earned $317 Billion last year) will end the existing litigation and be protected from any more State or Federal claims related to the Robo-Signer scandal.  This will not stop any individual claims by homeowners nor will it stop any claims for other lending abuses.

The bottom-line: This Settlement is only a drop in the bucket of the monetary relief that is truly needed to enable upside-down owners to keep their homes and get our nation’s real estate and economy back on track. It will have no real or lasting effect except for the few lucky homeowners that get enough funds to make a difference. For the lenders, this relatively small penalty will not be likely to punish them for their abuses nor deter them from such conduct in the future.  So, who wins from this Settlement?  Once again, it’s not the homeowners.

Meanwhile, if you or someone you know is struggling with an upside-down property and don’t know what to do, our Consultation Program can offer knowledge of what to expect and form strategies to either keep the property or move on with as little financial risk as possible.  To schedule a Consultation, please contact our office at 916 966-2260.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advice in your State immediately so that you can determine your best options.

Click the link below:

http://www.inman.com/news/2012/01/4/9-markets-with-rising-real-estate-values?page=0%2C0

Past Due Mortgages as of 1/1/10 8.1 million, 1/1/11 6.9 million and 9/30/11 6.4 million according to LPS.

Click here for Fannie Mae  HARP Guidelines.

Click here for Freddie Mac HARP Guidelines.

See if you qualify for the newest refinance program for underwater borrowers.

WaystoHoldTitleJeffBeck

Are the bailouts done yet? Probably not. Mortgage Insurers have losses up to 154% of their premiums reported by Money and Markets.

http://www.youtube.com/watch?v=HdLzXHIJKk4&ob=av2e

Real Estate Inv Update as of September 16, 2011:

Sac County-Active (A) 2,560, Active Short (AS) 1,425, Short Cont (SC) 2,394, Pending Sale (PS) 2,739, Solds since 1/1/11 (S) 13,008;

Placer County- (A) 875, (AS) 299, (SC) 661, (PS) 693, (S) 3,739;

El Dorado County- (A) 811, (AS) 200, (SC) 226, (PS) 317, (S) 1,583

Great article from Steve Beede, Attorney.  The lender from the seller or short sale negotiator will sometimes tell you go handle it this way described below, but don’t fall for it…

Steve Beede

FNMA & FREDDIE MAC KILL SHORT SALES.
BIG BANKS PUSH SELLERS TO COMMIT MORTGAGE FRAUD

A great many of the homes for sale today have more than one loan but there will not be enough sale proceeds to pay them both. That’s a short sale. To bridge this gap, a negotiation takes place whereby the first lender may agree to give some of the sale proceeds to a junior lender, such as a home equity loan, to get them to agree to release their lien. The typical amount given by first lenders to junior lenders is $3,000. But often that is not enough and the junior lenders demand that the Seller contribute more money to them. If they can do this, the seller avoids foreclosure. While this has been a common practice, the rules are now changing with very negative consequences for sellers, lenders, and the real estate community.

Understandably, a first lender wants to get paid in full before any money goes to a junior lender. If the seller has money that they could contribute to share in the loss, the first lender wants that money too. But often, sellers are giving money directly to junior lenders with or without the first lender’s consent or knowledge.  And that’s where the problem comes in. Today, nearly 90% of home loans are owned by FNMA, Freddie Mac, and other government sponsored enterprises (GSE’s). These are now demanding that there can be no seller contribution to a junior lender. The only money a junior lender can get in a short sale is what the first lender offers them. Recently, Freddie Mac rejected 3,000 Bank of America short sales where BofA had allowed the sellers to make payments to junior lenders or even to the sale closing costs!

This has now spread throughout the real estate market. Short sales with multiple loans are being killed by first lenders refusing to allow any seller contribution to anyone other than the first lender. And this has led some junior lenders to push sellers to commit mortgage fraud.

A real estate transaction is supposed to be “transparent”.  All parts of the deal are to show up on the escrow company’s Closing Statement, the HUD1. However, some junior lenders and some agents have urged sellers to make contributions to junior lenders “outside” of the escrow so they would not show up on the HUD1. While this may get the deal done and avoid foreclosure, participants are committing mortgage fraud by knowingly closing the sale with misrepresentations or omissions on the HUD1.  If caught, this is both a Federal and a State crime. While the impacted first lender could invalidate the short sale, the particpants, ie: sellers, buyers, agents, and junior lenders, could all face criminal prosecution.

If you are being pushed to commit mortgage fraud, don’t give in. Contact your lawyer for advice and consider reporting the second lenders to the FBI or your State’s Attorney General.  There are alternatives that might still get the deal done. But mortgage fraud is not the solution.