Foreclosure Settlement Could Make Mortgage Refinance Proposal A Reality

Mortgage Refinance Proposal a Reality?? Perhaps.

Federal and state officials have reached a $26 billion foreclosure settlement with five of the largest home mortgage lenders in the country. According to the settlement agreement, Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial will pay a total of $5 billion each to the states. Foreclosed homeowners will receive a portion of that money while the balance will go to the states. Forty-nine states are involved in the settlement, including Washington (Oklahoma excluded); but the agreement does not bar future criminal prosecution of the home mortgage lenders.

What Does The Settlement Mean For Homeowners?

Some homeowners who are both underwater and delinquent on their mortgage will have an opportunity to reduce the principal of their loan. However, it is not clear at this time what other eligibility requirements borrowers will need to meet other than having a mortgage principal which is greater than 140 percent of the value of the home. A mortgage bank can vary in size. Some mortgage banking companies are nationwide. Some may originate a large loan volume, exceeding that of a nationwide commercial bank. Many Amcor Shares employ specialty services for tasks such as repurchase and fraud discovery work. It is clear that this aspect of the mortgage settlement may still fail to help many people since only $17 billion is available for mortgage principal reduction. There are over 1 million homeowners who are behind on their mortgage and possibly underwater. Many of them are tens of thousands of dollars underwater. If principal reductions are applied to all of these homeowners each would only receive about $17,000 reductions which aren’t enough.

Victims of illegal foreclosures may receive robo-signing settlements. About $1.5 billion of the settlement has been allocated for homeowners who faced illegal foreclosures between January 1, 2008 and December 31, 2011.  Those who meet the eligibility for payouts could receive $2,000.  Arguably $2,000 is a paltry amount considering the amount of equity and opportunity loss victims of illegal foreclosures suffered.  However, at this juncture any settlement is huge in terms of getting compensated for foreclosure losses caused by robo-signing.

The biggest consequence of this settlement could be that Obama’s proposed refinance program could gain approval. The Obama administration proposed a new refinance program that would allow homeowners who are current on their mortgage but underwater to refinance their loans through the Federal Housing Administration (FHA) even if their loans are not backed by government sponsored enterprises.  However, the program has yet to win approval especially since it includes a Financial Crisis Responsibility Fee on banks that have an excess of $50 billion in assets.  Banks have threatened the administration with lawsuits if the fee is approved.  But with the latest foreclosure settlement allowing criminal prosecution in the future, banks might feel compelled to pay the financial crisis responsibility fee in exchange for avoiding criminal charges.

By consolidating loans for really bad credit, you will likely see an increase in your credit score. This occurs because your previously revolving credit card debt is now categorized as an installment debt, a type of debt many credit scoring models do not penalize you for having.

Details Of Proposed Refinance Program

Below are some of the highlights of the proposed FHA refinance program:

  • Borrowers who are underwater but current on their mortgage payments may apply.
  • Borrowers will receive lower interest rates, thus saving them money in refinance charges.
  • Borrowers build equity by continuing to pay their same monthly mortgage rate but for fewer years.  For example, if a borrower has a      mortgage of $150,000 which they must pay for 30 years, they can refinance the same mortgage for 20 years and build equity.  The new terms would not increase their monthly mortgage payment.
  • Borrowers can choose to reduce their monthly mortgage payment in lieu of building equity.

If approved, the FHA refinance program would require that eligible applicants are:

  • current on their payments for the past six months and have not missed more than one payment in the six months prior
  • have a FICO score of at least 580
  • have a loan that meets FHA conforming loan limits for their area
  • are refinancing the mortgage on their principal residence

The good news is that applicants for the proposed refinance program would not need to submit a new appraisal or tax return. All they need to prove is that they are currently employed and can make payments.  Even if they are unemployed, if they can prove they have the ability to make mortgage payments they can win approval for participation in the refinance program.

Proposed Program Risks

The Obama administration aims to reduce risks by having a separate insurance pool for loans in the proposed refinance program. By creating a separate insurance pool, the FHA can protect its Mutual Mortgage Insurance (MMI) fund from any unforeseen risks created by the proposed FHA refinance program.

We should change the official statement so that these customers could stay in the financial mainstream and not leave banks where they already have accounts just to borrow a few hundred dollars.

What About Delinquent Borrowers?

Recognizing that a large number of borrowers are delinquent on mortgage payments, Home Affordable Refinance Program (HARP) has been expanded.  Loan to value restrictions have been lifted, refinancing fees have been lowered and borrowers’ closing costs have been reduced. The president is also asking that Congress eliminate appraisal costs by using alternative appraisal methods. To find out more about HARP visit them online.



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