During the height of the mortgage boom, home loans were generally cheap and easy to secure. Unfortunately, many of these loans had provisions that could lead to a significant rise in the cost of the loan should the economy experience difficulties, as it did during the recession. Though the mortgage industry is rebounding, some banks abused the foreclosure process during the down period, which may have led to the eviction of homeowners. Several of those banks are close to a settlement with banking regulators that will provide funds for many of the affected homeowners.
The possible settlement involves 14 banks and $10 billion in settlement funds. The majority of the funds will go to homeowners currently fighting to remain in their homes, with payments intended to lower the principal owed on a home or to lower monthly payments. Of the $10 billion, $3.75 billion will go to those who have already lost their homes. The settlement will also stop a review of the banks’ loan files ordered in April 2011.
The settlement is arranged with lenders that played a part in the 2008 financial crisis that led to a bust in the housing market and approximately four million foreclosures since 2007. The settlement talks were held in secret over the course of a month, and final terms may be reached within a week. A previous settlement netted federal coffers $26 billion for homeowners due to state attorney generals going after lenders for failing to properly review mortgage documents that were used in foreclosure proceedings. No details have been released as to how the funds will be distributed.
Mortgage abuse was common nationwide, so funds from the settlement may be used to aid homeowners in the state of Massachusetts. Disbursement of the funds may take time, however, as a final settlement is reached and state programs are set into place to pass the funds provided through the settlement onto homeowners. In the meantime, Massachusetts residents still have the right to fight foreclosures through the court.
Source: The New York Times, “Settlement Expected on Past Abuses in Home Loans,” Jessica Silver-Greenberg, Dec. 30, 2012