Understanding the National Mortgage Settlement

loan modification national mortgage settlement

 

In the last few months, there has been a steady stream of news stories about the “National Mortgage Settlement” reached by the biggest mortgage lenders, the federal government, and every state that isn’t Oklahoma.  As with any trending news related to the foreclosure crisis, this development has prompted dozens of calls to my office from clients and potential clients who want to know about its impact, if any, on their efforts to save their homes.

While the mortgage settlement itself is complex, the general outlines can be expressed simply.  The settlement affected the “big five,” which are Bank of America, Wells Fargo, Chase, Citibank, and GMAC (now known as Ally Financial).  Those lenders agreed to a combination of loan modifications and loan forgiveness to atone for their bad behavior, which included false affidavits and other legal shenanigans during the foreclosure crisis.

One important thing to mention about this is that the settlement does not REQUIRE the banks to modify any particular mortgages.  However, while they are allowed to choose in which cases they will offer relief, they have certain financial obligations to meet.  In total, these amount to $17 billion.  How each modification or loan forgiveness is counted for this purpose is complex; the important thing to keep in mind is that they are obligated to offer some form of relief to hundreds of thousands of people.

In addition, the settlement provides payments for some people who lost their homes in foreclosure, if there were mistakes or abusive practices involved.

From a practical standpoint, here is what we are seeing: more people are getting approved for modifications, and they tend to be processed much more quickly than in the past.  They are also approving loan modifications while the borrowers are in bankruptcy, in some cases more easily than before the bankruptcy was filed.  This is likely due to a combination of factors, including the elimination of unsecured debt or the management of back taxes.  That makes the borrower less of a risk to re-default, and makes the banks more likely to offer relief.

For borrowers in an active bankruptcy, loan modifications are still available.  However, Court approval may be required, though it is almost always given if the documents are filed  properly.  If the case is filed under Chapter 13, the plan may need to be modified, or in certain cases, the case can simply be dismissed or converted, since the modification usually fixes the arrears and brings the loan current.

As a borrower, the way to take advantage of this settlement is to contact your lender, and apply for a loan modification.  In addition, there is a claim form you can fill out, and this must be done by January 18th, 2013.  It really is that simple.  And, while I won’t give my whole spiel about this topic, resist the urge to pay a company thousands of dollars to “assist” you in obtaining a loan modification.  If it can be done, it can be done by you, and professional help is only likely to lighten your wallet.

You also should check to see if your state has a website with specific information about the settlement.  Those sites generally contain information and instructions on how to take advantage of the settlement.

Good luck, and happy hunting!

~Andrew

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