Last week, the attorneys general in 49 states reached an agreement with the five largest mortgage lenders in the country to pay $25 billion toward rectifying loan servicing and foreclosure abuses. The settlement closes the chapter on the robo-signing scandal that broke in late 2010, when it came to light that major service providers were signing off on foreclosure documents without following proper protocols – in many cases, without even reading the paperwork.
Some homeowners undoubtedly will receive a portion of the settlement funds as restitution, and new homeowner protections will require lenders to make significant changes in how they deal with customers. Still, odds are that lenders will do everything in their power to minimize payouts by making it sufficiently difficult for homeowners to recoup any dollars.
In addition, only mortgages are held and serviced by Bank of America, Citibank, JPMorgan Chase, Wells Fargo and Ally Bank (formerly GMAC) will qualify for mortgage modifications. Those that were originated by the five banks but later sold to investors do not qualify for the settlement, nor do loans held by Fannie Mae and Freddie Mac.
Interestingly, the robo-signing settlement will most likely result in an increase in the number of foreclosures in the near future. Negotiations with the lenders took 15 months, during which time they clamped down on processing foreclosures. According to Fox News, foreclosures were down 40% between October 2010, when the robo-signing scandal broke, and December 2011. Now that an agreement has been reached, the banks want to get back to foreclosing on delinquent loans – this time, legitimately.
We predict that lenders will pick up the pace of foreclosures again and that they will also push to close short sales quickly. The renewed focus on short sales is good news for homeowners who currently are in arrears on their mortgage and want to get out from under their loan. Banks are more agreeable to negotiating a settlement to avoid the higher losses associated with a foreclosure, and the short sale process may go more smoothly in many cases as a result. If we can be of any assistance in arranging a short sale for your home, please give us a call.