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.