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Will $8.5 million foreclosure deal ripple through your backyard?

Another big settlement in the banking industry was announced this week as the feds threw in the towel on investigating mortgage foreclosure abuse and decided instead to let 10 large financial institutions pay some $8.5 billion to clear themselves of claims they improperly foreclosed on millions of homeowners.  Bank of America also will pay $10 billion to Fannie Mae to atone for shaky loans its Countrywide Financial unit sold to Fannie Mae and will buy back tens of thousands of other problem accounts per this recap from CNN Money.

US banks to pay $8.5B in mortgage settlement

US banks to pay $8.5B in mortgage settlement

It’s another piece of fallout from the bursting of the mortgage bubble and subsequent exposure of unsavory, negligent and/or unwise practices in the lending industry.  Like past settlements (here’s my blog post from February 2012  with ideas/resources for covering the one with states attorneys general) it will take a while to determine the exact pathways through which any aid will reach consumers. 

The banks, which include Bank of America and Wells Fargo, have agreed via the federal oversight agency the Comptroller of the Currency to give $3 billion in payments to some people previously foreclosed upon, and to spend $5 billion to help borrowers currently having difficulties with their mortgage.  Here’s an NPR interview with by Margaret Warner that explains further details.  Other reports say wronged borrowers could get up to $125,000 in compensation, eventually.

Until details about payments emerge — the Comptroller of the Currency’s press release says an agent will be hired and will be contacting borrowers by the end of March — you still can use this settlement as a peg to revisit the foreclosure and residential real estate market in your region.  Angles that come to mind include:

Servicing. Big banks also are selling mortgage servicing (collection) portfolios to non-bank firms that specialize in that line of business, as this MarketWatch article points out.   The Mortgage Bankers Association represents servicers; you might ask for leads to companies in your area and get their take on the proposed new Truth in Lending rules the Consumer Financial Protection Bureau wants to implement, including  clearer billing statements and problem-resolution pathways.   

The CFPB accepted public comments on the matter last fall; you can read them here -- and note that some of the comments are from state lending associations as well as entities like Habitat for Humanity.

Scams. Foreclosure relief and mortgage assistance scams are out there; here’s recent news about a California operation shut down in December and a recent Federal Trade Commission release about national efforts to close down fraudsters.  You can check with the FTC, your state’s attorney general, banking regulators, consumer advocates and other organizations about current scams under way in your region to develop a cautionary article for consumers becoming bewildered by the hodgepodge of legitimate mortgage help programs.

Sales. Will resolving some foreclosure issues loosen up residential real estate gridlock?  Forbes doesn’t think so – but says that gradually rising home equity will.  Ask local lenders, real estate agents and title companies about trends in loan-to-value ratio in your market and whether homeowners armed with greater purchasing power than a year or two ago are more willing to make a move.

 

About the Author

Veteran financial writer Melissa Preddy served as a business writer, editor and columnist for The Detroit News from 1995 to 2008, is a Michigan-based freelance journalist. She now works as a writer and editor for a medical research unit of the University of Michigan Medical School. Follow her daily posts. | E-mail: Melissa Preddy

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