WASHINGTON The housing settlement announced Thursday should make it easier for troubled homeowners to modify their mortgages and escape foreclosure, but it won't make everyone whole, consumer advocates say.
Those who have already lost their home to foreclosure could get payments of between $1,500 and $2,000. And though the settlement calls for mortgage servicers to reach out to troubled borrowers, it wouldn't hurt for those waiting homeowners to be a little bit pushy to make sure their issues get addressed quickly.
"People can't wait, they need to act," said Alys Cohen, a staff attorney with the National Consumer Law Center, an advocacy group. Borrowers have to modify their mortgages before the end of the year to qualify for the tax break which expires at the end of 2012.
There are a few key points for borrowers to note:
- Unless their mortgages are serviced by one of the five banks that were part of the agreement, they will have to wait for a subsequent agreement expected with other lenders.
- The relief will not come quickly; the plan documents say that mortgage servicers will be reaching out to borrowers over the next six to nine months, and they have allowed three years for the process to work.
- Furthermore, homeowners whose mortgages are backed by Fannie Mae or Freddie Mac will not qualify for the principal reductions that are part of the day. And of the 50 states, only Oklahoma ultimately opted out of the agreement, so borrowers who live there will not receive every advantage of the settlement.
So, what should troubled borrowers do now? That depends on how troubled they are. Here is some guidance.
FOR HOMEOWNERS HANGING BY A THREAD
If you have stopped making mortgage payments, and you owe more than your home is worth, you are the target person this settlement is designed to help first. You may be able to negotiate a reduction in the amount you owe on your loan.
Start with the new national website set up by the federal government for the settlement (link.reuters.com/dan56s).
Each servicer has set up a website to handle your case. Go there and start the process. The lenders in today's agreement are: Bank of America (r.reuters.com/cum56s); Ally Financial Inc (r.reuters.com/dum56s); Citigroup Inc (r.reuters.com/fum56s); J.P. Morgan Chase (r.reuters.com/gum56s) and Wells Fargo & Co (r.reuters.com/hum56s).
Document your efforts, and - if your case is complex or you don't think you are being treated right - find a housing counselor to help you. You can find one on the website of the Department of Housing and Urban Development (link.reuters.com/fan56s).
Servicers will be subject to new requirements that will limit the extra fees they can charge and will press them to negotiate principal reductions on a case-by-case basis. If you do win a principal reduction, you will not owe income taxes on it if the paperwork is completed in 2012.
You may not get everything you need or want. Some $17 billion was set aside for principal reductions and related relief, but the nation's homeowners are as much as $700 billion underwater, by some estimates.
IF YOU'RE UNDERWATER, BUT ON TIME
Homeowners who have been making payments on mortgages that are bigger than the value of the loan won't be able to win principal reductions under this program. But they may be able to refinance to more favorable mortgages.
Again, contact your servicer directly and request that refinance.
Should you stop making payments on your loan so you can qualify for the bigger relief? That could backfire in the form of a damaged credit score and a less-than-satisfactory settlement anyway. "We always say people should keep paying their mortgage," says Cohen.
IF IT'S TOO LATE TO SAVE YOUR HOUSE
If you have already been foreclosed upon, contact your state attorney general's office and make sure you are put on whatever list they are building for the cash payments. Some states will have more money than others.
The $1,500 to $2,000 average payment is "obviously not enough money to deal with the pain of losing your home," says Ira Rheingold, executive director of the National Association of Consumer Advocates. But it will help.
The best part about that payoff is that it does not restrict your right to go after your servicer or lender if you feel like your foreclosure was not handled legally.
If you want to file a claim on a foreclosure that has already occurred - or fight one that is imminent - you can find an attorney on the NACA website (www.naca.net).
(Editing by Beth Pinsker Gladstone and Matthew Lewis)