After months of wrangling, the long-awaited foreclosure settlement between the government and the banks appears to be at hand.
A $26 billion settlement was announced Thursday morning between the federal government, state attorneys general and the five largest banks in the mortgage market: Ally Financial (GMAC), Bank of America, Wells Fargo, JP Morgan and Citigroup.
While many of the details still have to worked out, the major points are fairly clear:
(a) The settlement will only impact mortgages that were held by the five banks. If a loan was sold to Fannie or Freddie it may not be part of the pool that may be eligible to share in the pot.
(b) Five ($5b) Billion has been earmarked for payments to homeowners who may have been improperly foreclosed upon between September 2008 and December 2011. Borrowers could receive up to $2,000.00, depending on the number of claims filed nationwide
(c) Seventeen ($17b) Billion has been earmarked for various principal writedowns and other relief up to $20,000.00 per household
(d) Three ($3b) has been earmarked for refinancing mortgages currently underwater.
According to various reports, there are at least 1.5-2 million households who could be eligible for the $2,000.00 payouts. In addition, there are an additional 1-2 million homeowners who could be eligible for some relief under the remaining prongs of the settlement.
The major questions still to be answered are:
(1) How does the pot get split up between the states – rumors have been circulating that California alone could get up to eight (8%) percent of the pool; and
(2) What are going to be the eligibility requirements – who will be lucky and who will not?
Stay tuned – The banks have up to three (3) years to implement and fulfill the requirements of the settlement. It will still take another couple of months at a minimum to begin to get clear direction on how it will be implemented.