Possible foreclosure settlement with the banks! $20 billion to be set aside by banks to fund mortgage modifications!
October 11, 2011 1 Comment
According to Fox Business there is a potential agreement to reach a settlement between the banks and the Department of Justice over the banks’ use of improper mortgage practices and robosigning. There are numerous types of improper mortgage practices and robosigning was the practice whereby the banks signed batches of mortgages without reading them. Bank of America and Chase are the banks that are announcing the settlement which is good because they are two of the largest banks. I did not see Wells Fargo listed in the potential settlement agreement.
The settlement would contain $20 billion in a “monetary relief fund” that presumably would be set aside to use for mortgage modifications.. This would hopefully allow people who had previously been turned down for a modification in the past to now get a modification. Also part of the deal is an overhaul of the entire mortgage system by putting in sweeping new guidelines that would fundamentally change the industry like the Tobacco settlement changed that industry in 1998.
None of the banks nor the justice department is commenting on the deal and there are several sticking points. The banks want immunity from lawsuits if they do this overhaul and set aside $20 billion. Several states have problems with giving the banks immunity. California has already apparently said that it won’t and it has backed out of the settlement. Arizona and Nevada are separately suing Bank of America and New York state has its reservations too.
There are numerous class action lawsuits filed against the banks which the banks want to get dismissed as part of the settlement. Also its unclear what the requirements will be to receive one of these settlement mortgages/modifications. The administration has a bad history of running these programs. The article points out that the Emergency Homeowners’ Loan Program (EHLP) was just shut down as it was badly administered, had too high income requirements, and failed to help nearly the number of people who it was designed for.
It’s hard to say what will come out of this. If $20 billion is set aside then there will be a pool of money to lend to people or to fund modifications that were previously denied. That would be a good thing. But if this program is as poorly run as EHLP then people may have trouble accessing it.
It would be a good thing though if there were new standards for determining what was required for a modification. My clients would universally all tell the same horror story of what happened when they applied to get a bank to modify their loan. They would send the same documents to the bank over and over again and each time they called they would speak to a new person at the bank. No one at the banks knew what was going on or what was needed to process the application. They would eventually give up or they would be denied because they suddenly made too little money. Sometimes they would be paying the new modified rate for a year when they were denied.
This is a system that is broken beyond repair and which needs some standards and some predictability. Why can’t there be set rules governing mortgages and mortgage modifications? Why can’t those rules be written so that people can understand the rules and know what is required of them? Why can’t they have some assurance that if they follow these rules or comply with these requirements they will get their mortgage or their loan modification? It’s not rocket science and it the mortgage industry should not be an enigma wrapped in a riddle surrounded by a mystery as Winston Churchill said.
So I look forward to more straight forward standards and lets hope that something good comes out of this settlement so more people can modify their mortgages and keep their homes. In the mean time I always advise my clients that if they have a lot of other credit card type debt then they should file for personal bankruptcy. This will eliminate these payments and free up income so they can qualify for a modification. It will certainly help their debt to income ratio.
I will give more updates in the future if and when this settlement is reached.
I am a bankruptcy attorney practicing bankruptcy law in San Diego, CA. For more information please visit my website at www.farquharlaw.com or www.freshstartsandiego.com. Or call my office for a free consultation at (619) 702-5015. If you or someone you know is considering bankruptcy then get my FREE E-BOOK “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” bt e-mailing me at; firstname.lastname@example.org.