Factbox: U.S. efforts to combat foreclosures
(Reuters) - Five large U.S. banks agreed on a $25 billion deal to end a year-long investigation into abusive foreclosure practices that is aimed at easing problems in the housing market, not just punishing the lenders.
President Barack Obama, shortly after the landmark agreement was announced on Thursday, urged Congress to move ahead on other measures he has proposed to bolster the hobbled housing sector.
Home prices have fallen by about a third since their 2006 peak, leaving many homeowners owing more than their home is worth. About 11 million Americans - about 1 in 4 with mortgages - are underwater, according to real estate data firm CoreLogic.
The following is a look at the mortgage settlement, Obama's latest proposals and existing government programs designed to help struggling homeowners:
$25 BILLION MORTGAGE SETTLEMENT
The settlement seals more than a year of negotiations after evidence emerged late in 2010 that shoddy paperwork on thousands of foreclosure documents.
The banks involved in the deal are Bank of America Corp, Wells Fargo & Co, JPMorgan Chase & Co , Citigroup Inc and Ally Financial Inc.
The $25 billion agreement includes $5 billion in cash payments for states and the federal government to pay for foreclosure-prevention efforts. That includes $1.5 billion for hundreds of thousands of homeowners whose homes were wrongfully seized from 2008-2011. Borrowers would receive checks that average $1,500 and $2,000 each.
About $17 billion is slotted to help borrowers in the form of mortgage debt forgiveness, including forbearance and short sales, and other mortgage aid. Included in that relief is about $10 billion to reduce principal for borrowers who, as of the date of the settlement, owe more on their mortgages than their homes are worth and are either delinquent or at risk of default.
The remaining $3 billion is dedicated to refinancings to lower homeowners' borrowing costs.
NEW FHA REFINANCE PLAN
Obama's latest proposal seeks to move homeowners who have been locked out of refinancing into loans backed by the Federal Housing Administration.
The administration estimates it could reach 3.5 million Americans who are not currently in government-guaranteed loans. An additional 11 million homeowners whose loans are backed by government-controlled entities Fannie Mae and Freddie Mac could also be eligible.
The estimated $5 billion to $10 billion cost of the program would be covered by a tax on banks that Republicans have already said they oppose. Republicans are also concerned about saddling the FHA with loans they say could undermine its solvency.
To be eligible, borrowers must not have missed a mortgage payment for at least six months and have no more than one late payment in the six months prior to that. They also must have a credit score of 580 or better.
The borrower's mortgage balance also cannot exceed the conforming loan limits for FHA-insured loans in their communities, which are capped at $729,250 in high-cost markets. They also must own and reside in the home covered by the loan.
HOME AFFORDABLE MORTGAGE PROGRAM
The Home Affordable Mortgage Program, the administration's main foreclosure prevention program, aims to reduce monthly mortgage payments for homeowners. HAMP provides incentives to mortgage servicers to cut interest, extend terms or defer parts of a loan.
It was targeted to help 3 million to 4 million homeowners but has reached only about a quarter of that since its 2009 inception. To cover the cost of the program, the Treasury Department set aside $29 billion from its financial bailout fund, but only $2.3 billion has been used.
The White House said on January 27 that it would extend the life of the program by a year through 2013 and widen it to reach more heavily indebted homeowners.
It also tripled the incentives it pays to investors when they reduce loan balances and said it would offer incentives to Fannie Mae and Freddie Mac to encourage them to forgive mortgage debt.
The regulator of Fannie Mae and Freddie Mac, which have been propped up with $169 billion in taxpayers funds, has prevented the firms from reducing loan principal out of concern it would drive up the taxpayer costs of their bailout. The new incentives are designed to overcome that objection. The regulator - the Federal Housing Finance Agency - has said it is studying the proposal.
HOME AFFORDABLE REFINANCE PROGRAM
The Home Affordable Refinance Program seeks to provide refinancing options to so-called underwater borrowers who have no equity in their homes as long as their mortgage is backed by Fannie Mae and Freddie Mac.
The two government-run mortgage firms have refinanced more than 998,500 loans through the HARP program since its inception.
In a bid to make it easier for borrowers to refinance at lower rates, FHFA revamped HARP in October in conjunction with the White House. New guidelines allow borrowers to refinance regardless of how far their homes have fallen in value; previously, there was a cap of 125 percent of a loan's current value.
As part of the retooled program, Fannie Mae and Freddie Mac also agreed not to demand banks compensate them for loans that later prove to have breached original underwriting contracts.
The White House said on February 1 that it wants Congress to broaden HARP's reach. It said the regulator that oversees Fannie Mae and Freddie Mac had not done enough to make the program accessible.
FORECLOSURES TO RENTALS
The administration has worked with FHFA for months to create a program to convert government-owned properties into rental units by auctioning them to investors.
FHFA announced on February 1 that it was ready to start prequalifying investors for pilot programs targeting areas hit hardest by the foreclosure crisis. The effort could help stop further house-price declines in some real-estate markets.
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