Last week, the Federal government and 49 state governments (Oklahoma being the exception) agreed to a $25 billion settlement regarding robo-signing and the challenges it created in the foreclosure process. We want to give a synopsis of the settlement and some perspective on what effect it will have on the housing market in 2012.
The Basics
The $25 billion in funds will be dispersed as follows:
$17 Billion National Commitment to Foreclosure Relief Efforts
The servicers collectively agree to commit a minimum of $17 billion directly to borrowers through foreclosure relief effort options, including principal reduction for qualifying borrowers, short sales, anti-blight measures, and enhanced homeowner transition programs.
$3 Billion National Commitment to Underwater Mortgage Refinancing Program
The servicers collectively agree to commit $3 billion to refinance “underwater” homes (when a homeowner owes more on a mortgage than a home’s current market value). To qualify, borrowers must be current on their mortgage payments on a mortgage owned by one of the five banks.
$5 Billion Payment to States and Federal Government
The servicers’ $4.25 billion payment to the states includes $1.5 billion for payments to borrowers who lost their home to foreclosure by one of the five servicers…$750 million of the state-federal payment will go to the federal government to resolve federal claims.
For further details on the settlement you can go to the official website.
Will the Settlement Have a Major Impact on a Housing Recovery?
Probably not. Though it is a step in the right direction, it may be too little too late. Here are some opinions on the settlement:
“Like many previous plans to stem foreclosures, this agreement will help at the edges. The problem is too big for it to have a large impact, however…This agreement will help the housing market move ahead in 2012 in a small way. But it is hardly a game changer.”
“While there is no doubt some benefit to formalizing and organizing the process of foreclosure and better monitoring of the process, the fact is that the settlement changes little.”
“While it is good that the settlement has been finalized and will offer principal reductions and refinancing schemes to borrowers, the bigger picture is that the settlement is not large enough to dramatically alter the outlook for the housing market or the wider economy.”
What about Foreclosures Moving Forward?
The settlement did bring clarity to one major issue – foreclosures. Banks have been holding off the foreclosure process on millions of homes over the last 18 months as they waited for the particulars of the settlement. They now know how they can move forward without penalty. The result will be an increase in foreclosures coming to the housing market.
“It will speed up processing, and perhaps mean that foreclosures that have been waiting around since robo-signing came to light in 2010 will now gain legitimacy.”
“It does appear the number of completed foreclosures will increase following this settlement – especially in some judicial states with large backlogs – so there will probably be more REOs (lender Real Estate Owned) for sale.”
“The $25 billion settlement with banks over foreclosure abuses may result in a wave of home seizures…Lenders slowed the pace of foreclosures as they negotiated with attorneys general in all 50 states for more than a year over allegations of faulty and fraudulent paperwork used to repossess homes. With yesterday’s agreement, banks are likely to resume property seizures.”
“Mark Vitner, a senior economist at Wells Fargo Securities, said the settlement helps the housing market in the long run because it allows banks to proceed with millions of foreclosures that have been stalled. Many lenders have refrained from foreclosing on homes as they awaited the settlement.”