Foreclosure Fraud Settlement Update…

Full and complete details are still not available as of today. We have been given only the main points of the agreement. Missing still are the most important aspects; the implementation and enforcement details. As the well known saying goes…’The devil is in the details’ (see below).

A previously ‘settled’ suit by Nevada/Arizona against Bank of America for failing to follow their responsibilities in the Countrywide settlement will be folded into the deal. In that settlement, BofA promised to deliver $8.5 billion in relief for Countrywide borrowers who fell victim to deceptive practices in the mortgage process. In reality, only $236 million was ever spent. Weak settlement terms allowed BofA to take credit merely for offering loan modifications to borrowers. And the Nevada suit alleged that BofA immediately started abusing borrowers who tried to get relief under the deal. But that suit is now gone.

State and federal regulators insist that they learned their lesson with that botched settlement and that this one has tight enforcement guidelines. (Sure!) However, the monitoring process begins with a self-assessment from the banks through quarterly reports, which will then be reviewed by a govt. determined committee. This enforcement process is likely to take months to ‘properly assess’ the settlement.

What has been made public is that 5 billion will go as a hard cash penalty to the states, which can use the monies, for what appears to be, any reason. As a matter of fact, one official close to the talks stated that he feared that much of that cash payout will go in some states toward filling their budget holes. The federal government will get a cash penalty as well (how much? for what purposes?)  Out of that $5 billion, up to 750,000 borrowers wrongfully foreclosed upon will get (up to) a $2,000 check if they sign up for it and it is determined that they qualify (who can qualify and what the process is has yet to be disclosed). For someone wrongfully foreclosed on, foreclosed on with fraudulent documents or denied due process, this is the equivalent of saying to them “sorry we broke the law and stole your home, here’s one months rent, now go away quietly.”

The bulk of the money, NOT actually a payment of any kind, around $17 billion, will go towards loan modifications, principal write-downs, short sales and other foreclosure avoidance efforts.

This figure pales in comparison to the negative equity in the country, which sits at, at least, $700 billion. Nationally, 1 in 5 mortgages is currently under water…here in Florida, almost 1 in 2 mortgages is under water. AND the banks have 3 years to implement these processes and procedures.

It will be many years into the future, after this ‘landmark settlement’ has faded from scrutiny, before it can be determined if the promises on loan modifications, etc., have been fulfilled. 

Do you think this multi-billion-dollar settlement is tough on the banks?Lets look at the stock prices of the banks involved in this settlement…did they fall through the floor as a result of the drastic penalties invoked?

• Well, just before Christmas, Bank of America stock dipped below the $5.00 mark; on Friday, it closed over $8.00…UP OVER 60% in 60 days! Nice…and one would have to have their head firmly in the sand to think that the terms of this settlement were not widely distributed to the ‘in’ crowd in the past 60 days.
• Citi..again, from a low point of about $25 the same day, just before Christmas, to a close of about $33 on Friday…a 30% return in 60 days…not as good as BofA, but still not bad for the insiders.

**and the mention of insiders brings up this point: Our elected officials do not have to comply with the rules/laws governing the trading of equities on inside information. I’d like to see how many of the ‘peoples representatives’ (privy to the details/impact of this settlement) bought bank stock in the past 60-90 days.

• JPMorgan Chase…Same date of the low…just before Christmas at just under $31, to a close on Friday of just under $38.00…only a 22% return (and that's NOT annualized) on that trade.
• Wells Fargo…SAME low date just before Christmas, of about $25.50 to a close on Friday of $30.30. Another tidy return of about 20% in 60 days.

If you laid these charts on top of one another…they are almost identical in movement! The terms were leaked, the impact evaluated, and then the party started!

I’ll post again on this when the FULL details are finally released, whenever that may be!

 

Thanks for reading and putting up with my heavy dose of cynicism…Steve Jackson

Call or email me any time with your take on the matter, 561-602-1258

The BIG bank settlement…

Here are the main details of todays multi-state bank fraudclosure settlement…my analysis and opinion will come in a few days, after I have had time to read and digest the full settlement (which I have to diligently search for because it is not readily available)

NEW YORK (CNNMoney) -- The nation's five largest banks have finally struck a deal with 49 states to settle charges of abusive and negligent foreclosure practices dating back to 2008.

Under a deal announced Thursday, the banks will commit $26 billion to help underwater homeowners and compensate those who lost their homes due to improper foreclosure practices…

What did the mortgage lenders and loan servicers agree to do? The banks and servicers have committed at least $17 billion to reduce principal for borrowers who 1) owe far more than their homes are worth 2) are behind on payments.

The amount of principal reduction will average about $20,000 per borrower.

Another $3 billion will go toward refinancing mortgages for borrowers who are current on their payments. This will enable them to take advantage of the historic low interest rates currently available.

The banks will pay $5 billion directly to the states, the only hard money involved in the deal. Out of that fund will come payments of $1,500 to $2,000 to homeowners who lost their homes to foreclosure. Other funds will be paid to legal aid and homeowner advocacy organizations to help individuals facing foreclosure or experiencing servicer abuses.

Another $1 billion will be paid directly by Bank of America to the Federal Housing Administration to settle charges that its subsidiary, Countrywide Financial, defrauded the housing agency.

In addition, the banks agreed to eliminate robo-signing altogether and to use proper and legal procedures when putting homeowners through the foreclosure process. They also agreed to end servicer abuses, like harassing delinquent borrowers for payments, and to include principal reductions more often in their mortgage modifications programs.

Is my mortgage lender taking part in this settlement? Bank of America, Wells Fargo , JPMorgan Chase, Citigroup and Ally Financial
are taking part in the settlement.

In addition, nine other unnamed loan servicers may join the settlement later, and that would bring its value to $30 billion.

Loans owned or backed by Fannie Mae and Freddie Mac, however, are not part of the deal. The Federal Housing Finance Agency, which oversees the two government-sponsored mortgage giants, will not allow any balance reductions for loans insured by the companies under the settlement.

I lost my home to foreclosure; how do I know if I qualify for payment? If you were foreclosed on in the calendar years 2008 through 2011, you may be be eligible for a payment of up to $2,000. People who think they may qualify should notify their bank.

What should I do if I think I may qualify for a principal reduction or refinanced mortgage? Contact your lender/servicer and ask them to review your case.

If I take the money, what rights do I give up? Individual borrowers do not give up any right to sue.

As part of this deal, state attorneys general gave up the right to sue the mortgage servicers for foreclosure abuses arising out of the robo-signing scandal. However, they reserve the right to sue if they uncover improper acts when the loans were originated or when they were securitized.

When will the new rules and bank policies be put into place? Most of them have already become part of bank policies.

When will homeowners get paid? HUD said the settlement will be put before a court for approval within two weeks. It is unknown how long it will then take for a court to rule.

The relief for homeowners has to be completed within three years, but the state attorneys general and HUD want it to be front-loaded and completed within 12 months.

Would I have to pay taxes on the principal reductions or the pay-outs? If the principal is reduced in 2012, it will not be subject to income tax.

That's because the Mortgage Debt Relief Act of 2007 allows taxpayers to exclude income from the discharge of debt on their principal residence. The act is scheduled to expire at the end of this year, however.

So if the act is not extended and the principal reduction occurs in 2013, borrowers may be on the hook to pay taxes on the settlement amount.

It's not clear whether you would have to pay taxes on the $1,500 to $2,000 payout. The IRS declined to comment on the question.

Will the settlement make it harder to get a mortgage? The new rules and regulations the banks have agreed to under the settlement should have little impact on future mortgage borrowing since most of practices are already in place, said Keith Gumbinger of HSH Associates, a mortgage information provider.

Only $5 billion of the $26 billion settlement will be a direct cost to the banks. The remainder will be the cost of modifying mortgages. Many of those modifications may be in the best interests of the banks to make, however, since the alternative may be foreclosure, which can cost banks more than modifications.

Come back in a day for my insight and analysis of the States Attorneys General settlement with these 5 banks! I’m certain it will be a bit different than the popular spin being put on it now.

 

Thanks for reading…Steve Jackson

561 602 1258 (direct)