Bottom Line - Mortgage Settlement Leaves Most Homeowners to Fend for Themselves
The landmark $25 billion settlement reached by the federal government, 49 states and the nation’s five biggest banks will provide long-overdue relief for hundreds of thousands of homeowners who have been struggling to navigate the mortgage mess created by lenders.
The wider impact for most homeowners, along with the housing market and economy, will be much more limited.
“You’re hardly skimming the surface,” said Paul Dales, a housing economist with Capital Economics. “It could help some people a lot, individually. But in terms of the big-picture, overall economy and housing market, it’s really just a drop in the ocean of the problem.
The settlement takes a multipronged approach to try to unravel the aftermath of a housing market collapse that resulted in more than seven million foreclosures, created a legal morass for lenders and left a red tape nightmare for millions struggling to hang onto their homes.
Some of those who lost their homes may be eligible for a small cash payment, while others who are struggling to hang on may see their monthly payments lowered substantially through reductions in interest rates or their principal balance. So if you’re one of the lucky homeowners reached by the program, the impact could be significant.
That won’t happen right away: the details of who will be helped and how they’ll be chosen have yet to be worked out. (See: What the mortgage settlement means to you.)
Over the next 30 to 60 days, state and federal officials say they will pick an administrator to handle the logistics and a monitor to track lenders’ compliance. It will take another six to nine months identify eligible homeowners and notify them by mail. Lenders have three years to complete loan modifications. If they come up short, unearned modification credits will be converted to a cash penalty paid to the government.
State and federal officials say the settlement could eventually help as many as a million households. Roughly 750,000 borrowers who lost their homes to foreclosure between 2008 and 2011 will get a cash payment of about $2,000.