STATESMAN STAFF AND WIRE REPORTS
Many companies that process foreclosures failed to verify documents. Some employees signed papers they hadn’t read. Or they used fake signatures to speed foreclosures — a step called “robo-signing.” As a result, some homes were seized improperly.
“The settlement holds the participating banks accountable for their unacceptable mortgage servicing and foreclosure practices and provides relief to homeowners,” Idaho Attorney General Lawrence Wasden said. “Backed by a federal court order, the settlement will aid homeowners with enforceable changes to how their loans are serviced.”
Here are questions and answers:
Q. What is this settlement?
A: It’s the result of an 18-month multistate law enforcement investigation of the participating banks’ servicing practices. The investigation began in response to allegations that the banks were filing fraudulent documents with the courts in judicial foreclosure cases. A judicial foreclosure is one that is conducted under the supervision of a court. While Idaho allows for judicial foreclosures, it is not widely used here. In Idaho, foreclosure is most often done by “advertisement and sale.” In such foreclosures, the lender does not file documents in court. Instead, the lender or servicer notifies the borrower of the default and the lender’s decision to sell the property at a trustee’s sale.
Idaho’s $114 million is part of a $25 billion state-federal settlement that resolves state and federal claims relating to mortgage origination, servicing, and foreclosure practices of Bank of America, Citi, J.P. Morgan Chase, Ally, and Wells Fargo. Together, these companies service about half of the U.S. mortgage loan market.
Q: Who stands to benefit?
A: Most of the money would go to some homeowners who are underwater. Many are struggling to make their payments and are at risk of foreclosure. Yet because they have no home equity, they’ve been unable to refinance into a lower-rate loan. For about 1 million underwater homeowners, their loan principal will be reduced by an average of $20,000. But more than 90 percent of underwater homeowners won’t be helped. Some, however, might be eligible to refinance at a rate of 5.25 percent.
In Idaho, about $75 million is being set aside to help them with loan modifications and other direct relief. Another $15 million will help underwater homeowners refinance their loans. And $10 million will go to cash payments averaging $1,500 to $2,000 each for about 5,000 Idaho borrowers who lost their homes to foreclosure from 2008 through 2011 because of substandard loan-servicing practices. A spokesman for Wasden said it isn’t known how many Idahoans will get help with loan modifications and refinancings.
Q: Could I be eligible for relief?
A: You may, if your loans are owned or guaranteed by private lenders. Roughly half the mortgages in the United States — about 30 million loans — are owned by private lenders. The other half are owned by government-controlled mortgage giants Fannie Mae and Freddie Mac. Homeowners with these mortgages aren’t eligible.
Q: How might the settlement help people avoid foreclosures?
A: It requires that banks make foreclosure a last resort. And it bars lenders from foreclosing on a homeowner who is being considered for a loan modification. If this worked effectively, “it would help borrowers, lenders, the entire country,” said Ray Brescia, a visiting law professor at Yale University who has tracked the housing crisis. But he cautioned that it would help only if diligently enforced.
Q: Will homeowners still be able to take action against lenders on their own?
A: Homeowners who get checks will not lose their rights to sue lenders in court. And states will still be able to criminally charge lenders and servicers who engaged in deceptive or illegal foreclosure practices. Missouri, for example, charged a Georgia-based mortgage servicer and its founder last week on charges of falsifying 68 notarized deeds on behalf of mortgage lenders.
Q: Will I be told if I’m eligible for help?
A: Because of the complexity of the mortgage market and this agreement, which will span a three-year period, in some cases participating mortgage servicers will contact borrowers directly regarding loan modification options. However, Idahoans with loans serviced by the five participating banks should contact their banks directly to obtain more information about specific loan modification programs and requirements, Wasden said. The national settlement administrator may also contact borrowers regarding certain aspects of the settlement.
Q: How can I find out more?
A: Information about this settlement and other mortgage-related subjects will be available on the attorney general’s website at http://www.ag.idaho.gov. In addition, a website dedicated to this settlement has been created at http://www.NationalForeclosureSettlement.com.
The Idaho Department of Finance said homeowners with loans serviced by one of the five settling mortgage servicers may contact the servicer directly: Ally/GMAC (800-766-4622), Bank of America (877-488-7814), Citi (866-272-4749), JPMorgan Chase (866-372-6901) and Wells Fargo (800-288-3212).
Q: Could the settlement help repair the troubled housing market?
A: Possibly, but only in the long run. U.S. banks will likely process foreclosures faster now that a deal has been finalized. Foreclosure filings have slowed because of backlogged courts, judges skeptical of foreclosure documents and lenders awaiting a final government-backed deal. “If it helps 1 million homeowners over the next few years, it should help housing prices stabilize and start rising again,” said Mark Zandi, economist at Moody’s Analytics. “And this should unclog the foreclosure process.”
Benefits for homeowners
The settlement provides for comprehensive new servicing and foreclosure protections for borrowers, including:
• An end to robo-signing.
• Timely and accurate application of borrowers’ payments.
• Proper oversight of third-parties (e.g., attorneys, trustee companies, etc.) that participate in servicing or foreclosure activities.
• Adequate staffing and systems to track loan modification documents.
• Notice of delinquency to the borrower 14 days before the loan is referred to foreclosure.
• Notice to the borrower of all loss mitigation options before the loan is referred to foreclosure.
• Restrictions on simultaneous loan modification reviews and foreclosure actions (i.e., dual-track).
• A single point of contact for each borrower who contacts the bank about a loan modification.
• A decision on loan modification applications within 30 days of receipt.
• Enhanced protections for individuals serving in the military.
• An independent internal review of all loan modification denials.
• Development of a short sale process that allows borrowers to obtain a short sale evaluation before putting the home on the market.
• Proper documentation of the banks’ authority to foreclose.
Source: Idaho Attorney General’s Office