Who Will Really Benefit From The Foreclosure Settlement?
As the general public learns more details of the $26 billion foreclosure settlement between the five largest mortgage lenders and the state’s attorneys general, many homeowners are becoming disgruntled. While the foreclosure settlement touts that it will slash the mortgage principal of nearly 1 million homeowners, many homeowners say that’s not enough. The numbers of homeowners who may receive help is only a fraction of the 11 million homeowners who are underwater on their mortgages.
And certain homeowners may not have access to the foreclosure deal at all. According to the rules of the settlement, mortgage principal reductions are only available to homeowners whose mortgages are held by Bank of America, Wells Fargo, Citibank, J.P. Morgan Chase and Ally financial. Any mortgage backed by Fannie Mae or Freddie Mac is not eligible to receive principal reduction, which means the vast majority of homeowners won’t have access to the foreclosure settlement benefits. This fact has some homeowners in the Seattle area feeling slighted by the deal.
“If it’s offered to one group, it should be offered for all,” said Stacy Ovendale from Seattle, who says her home has lost nearly 50% of its value. “When my mortgage was written up, I had to take whatever program was available to me at the time, which happened to be FHA. … It’s so frustrating because my loan is with Bank of America but since it’s FHA, my mortgage is current and I have chosen to be responsible, there is nothing they can offer me in the way of principal reduction.”
Many underwater homeowners unable to qualify for the mortgage principal reduction may begin to feel discouraged and eventually abandon their homes to foreclosure. According to some experts, this could have a ripple effect on the housing market, creating more REOs instead of fewer in the long-term.
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