The government vows to closely monitor that the nation’s five largest banks fulfill the aid to home owners outlined in a $25 billion mortgage settlement over foreclosure allegations.
More details emerged in court filings on Monday of the landmark settlement among the nation’s five largest banks and state and federal government officials. The settlement, first announced last month, stems from allegations over banks’ foreclosure practices, although as part of the settlement the banks do not have to admit to any wrongdoing.
Among some of the aid outlined in the $25 billion settlement for home owners:
Banks have agreed to pay about $20 billion to help home owners avoid foreclosure. The majority of that money will be allocated to reducing the mortgage principal and modifying loans for about 1 million underwater home owners.
Banks have agreed to pay $5 billion to federal and state government officials, with a portion of that money going to compensate about 750,000 Americans who have been found to be wrongfully foreclosed upon from 2008 through 2011. Affected home owners will receive $2,000 checks.
Banks will be required to adopt new processing standards for foreclosure. For example, banks will be unable to pursue a foreclosure when home owners are being considered for a loan modification.
Banks must comply with the terms of the settlement or face stiff penalties. Banks are required to complete all loan relief requirements as part of the settlement within three years; 75 percent of it is to be fulfilled within two years. Any bank that violates the agreement will be fined $1 million for each violation, capped at $5 million for repeat violations.
The settlement does not free banks from criminal action. Federal and state officials can still pursue criminal action action against banks for any wrongdoing over foreclosures.
The mortgage settlement only applies to mortgages held privately. It does not apply to mortgages held by Fannie Mae and Freddie Mac.
The banks part of the settlement are Bank of America, Citigroup, JPMorgan, Chase, Wells Fargo, and Ally Financial.
Some banks have negotiated separate requirements so they won’t have to pay as much in penalties to federal and state officials. For example, in return to a reduction in penalties, Ally Financial has agreed to cut the mortgage principal for struggling home owners by 105 percent of the home’s value. Bank of America says it will trim the mortgage principal of more than 200,000 struggling borrowers.
The settlement still must be approved by a judge to be final.
Source: “Feds Promise Tough Oversight in Mortgage Deal,” Reuters (March 12, 2012) and “Gov’t Files $25B Mortgage Settlement; Banks to Provide Relief Without Admitting Wrongdoing,” Associated Press (March 12, 2012)
Tuesday, March 13, 2012
After More Than a Month, $25B Settlement Filed in Court
By: Esther Cho 03/12/2012
The $25 billion mortgage servicing settlement agreement was filed in federal court Monday, announced the Justice Department, HUD, and 49 state attorneys general.
State and federal officials and five of the largest servicers – Bank of America, J.P. Morgan Chase, Wells Fargo, Citigroup, and Ally Financial – settled on February 9, outlining an agreement to address faulty practices in the mortgage industry and to deal with issues regarding wrongful foreclosures.
Oklahoma was the only state to opt out of the agreement, with the state’s Attorney General Scott Pruitt deciding to seek out a separate settlement leading to $18.6 million.
Now, there are court documents to provide the details of the servicers’ financial obligations under the agreement, which include $20 billion in consumer relief, and new servicing standards that will change foreclosure practices for mortgage companies.
The $20 billion in relief will help homeowners through principal reduction and refinancing for underwater homes, principal forbearance for unemployed borrowers, short sales assistance, and additional benefits for service members. An additional $5 bill will go to government officials.
With new servicing standards are new policies for foreclosure prevention. For example, servicers will no longer able to foreclose on a borrower being considered for a loan modification, and servicers are required to have a single point of contact for borrowers.
The settlement also establishes a third-party monitor to oversee implementation of the servicing standards, and if violations are found, the servicer can be penalized up to $1 million per violation or up to $5 million for certain repeat violations.
After federal authorities led investigations on servicing practices, issues were found such as lost paperwork, robo-signing, and unfair fees.
While the settlement has been hailed as a significant landmark agreement that will help millions of homeowners, critics question the real impact considering the settlement does not include Fannie Mae and Freddie Mac, which are said to control more than half of all mortgages in the U.S.
The $25 billion mortgage servicing settlement agreement was filed in federal court Monday, announced the Justice Department, HUD, and 49 state attorneys general.
State and federal officials and five of the largest servicers – Bank of America, J.P. Morgan Chase, Wells Fargo, Citigroup, and Ally Financial – settled on February 9, outlining an agreement to address faulty practices in the mortgage industry and to deal with issues regarding wrongful foreclosures.
Oklahoma was the only state to opt out of the agreement, with the state’s Attorney General Scott Pruitt deciding to seek out a separate settlement leading to $18.6 million.
Now, there are court documents to provide the details of the servicers’ financial obligations under the agreement, which include $20 billion in consumer relief, and new servicing standards that will change foreclosure practices for mortgage companies.
The $20 billion in relief will help homeowners through principal reduction and refinancing for underwater homes, principal forbearance for unemployed borrowers, short sales assistance, and additional benefits for service members. An additional $5 bill will go to government officials.
With new servicing standards are new policies for foreclosure prevention. For example, servicers will no longer able to foreclose on a borrower being considered for a loan modification, and servicers are required to have a single point of contact for borrowers.
The settlement also establishes a third-party monitor to oversee implementation of the servicing standards, and if violations are found, the servicer can be penalized up to $1 million per violation or up to $5 million for certain repeat violations.
After federal authorities led investigations on servicing practices, issues were found such as lost paperwork, robo-signing, and unfair fees.
While the settlement has been hailed as a significant landmark agreement that will help millions of homeowners, critics question the real impact considering the settlement does not include Fannie Mae and Freddie Mac, which are said to control more than half of all mortgages in the U.S.
AMI Warns $25B Settlement Will Cost Innocent Investors
By: Esther Cho 03/12/2012
While the top five servicers are known to be paying for the $25 billion settlement, the Association of Mortgage Investors (AMI) stated the settlement is expected to draw billions of dollars from uninvolved investors, which include seniors and unions.
Many public institutions and retiree institutions invested in mortgage-backed securities because they thought they were a safe investment, said AMI Executive Director Chris Katopis.
Unbeknownst by investors would be issues with mortgage servicing addressed through the $25 billion settlement and the high number of underwater homes needing to be rescued.
In a HUD fact vs. myth sheet published Monday, it was argued that the settlement will not cost teachers, firefighters, and others who invested into mortgage-backed securities.
While HUD did acknowledge that the settlement could affect some investor-owned loans, the agency stated that when considering the projected losses from foreclosures on investors, applying loan modifications, including principal reduction, will actually cost less.
HUD further clarified only loans that are delinquent or at imminent risk of default can receive modifications.
Also, the settlement does not override existing contractual agreements between the servicer and investors. If contracts don’t allow for principal reduction, then servicers can’t apply principal reductions.
Despite heavy criticism, Edward J. DeMarco, FHFA acting director, has not approved Fannie Mae and Freddie Mac loans for principal reductions.
AMI also argues against the use of Net Present Value (NPV) to determine eligibility for a loan modification and would like to see the makeup of the formula disclosed.
Shrouded in mystery, NPV is said to provide an estimation of the likelihood of a loan defaulting again even after getting modified, according to bankrate.com.
“The NPV model incorporated into the settlement must consider all of a borrower’s debts, be national in scope, transparent, and publicly disclosed,” said AMI in a statement. “An incorrect NPV model likely will lead to further re-defaults and further harm distressed homeowners.”
Katopis said re-defaulting will ultimately leave both investors and homeowners worse off.
While AMI supports the settlement claims against servicers, the association argues that while 49 state attorneys generals, federal officials, and five servicers were involved, investors were left out of the equation when settlement terms were negotiated.
As part of the settlement, we’re critical of the fact that investors are not on the table and no doubt that investors will have to pay, said Katopis, who also said AMI is thoroughly conducting investigations to see what can be done to protect investors.
While the top five servicers are known to be paying for the $25 billion settlement, the Association of Mortgage Investors (AMI) stated the settlement is expected to draw billions of dollars from uninvolved investors, which include seniors and unions.
Many public institutions and retiree institutions invested in mortgage-backed securities because they thought they were a safe investment, said AMI Executive Director Chris Katopis.
Unbeknownst by investors would be issues with mortgage servicing addressed through the $25 billion settlement and the high number of underwater homes needing to be rescued.
In a HUD fact vs. myth sheet published Monday, it was argued that the settlement will not cost teachers, firefighters, and others who invested into mortgage-backed securities.
While HUD did acknowledge that the settlement could affect some investor-owned loans, the agency stated that when considering the projected losses from foreclosures on investors, applying loan modifications, including principal reduction, will actually cost less.
HUD further clarified only loans that are delinquent or at imminent risk of default can receive modifications.
Also, the settlement does not override existing contractual agreements between the servicer and investors. If contracts don’t allow for principal reduction, then servicers can’t apply principal reductions.
Despite heavy criticism, Edward J. DeMarco, FHFA acting director, has not approved Fannie Mae and Freddie Mac loans for principal reductions.
AMI also argues against the use of Net Present Value (NPV) to determine eligibility for a loan modification and would like to see the makeup of the formula disclosed.
Shrouded in mystery, NPV is said to provide an estimation of the likelihood of a loan defaulting again even after getting modified, according to bankrate.com.
“The NPV model incorporated into the settlement must consider all of a borrower’s debts, be national in scope, transparent, and publicly disclosed,” said AMI in a statement. “An incorrect NPV model likely will lead to further re-defaults and further harm distressed homeowners.”
Katopis said re-defaulting will ultimately leave both investors and homeowners worse off.
While AMI supports the settlement claims against servicers, the association argues that while 49 state attorneys generals, federal officials, and five servicers were involved, investors were left out of the equation when settlement terms were negotiated.
As part of the settlement, we’re critical of the fact that investors are not on the table and no doubt that investors will have to pay, said Katopis, who also said AMI is thoroughly conducting investigations to see what can be done to protect investors.
BofA to Offer Principal Reductions of More than $100K
Some Bank of America borrowers may be in for principal reductions in amounts exceeding $100,000, according to the latest developments in the settlement the bank and four other large servicers made with state and federal regulators.
Of the five servicers participating in the settlement, BofA is set to pay the largest portion of the total $25 billion settlement. The bank will pay $3.24 billion to the government and $8.58 billion to borrowers.
Of BofA’s total, $1 billion is part of a separate settlement regarding loan origination issues for Countrywide, which BofA acquired in 2008.
While the other four servicers in the national settlement are being required to diminish principal so underwater borrowers have loan-to-value ratios of 120 percent or less, BofA will be reducing principal for about 200,000 homeowners to fall in line with current market values.
For some deeply underwater borrowers, this may result in reductions of more than $100,000.
The expanded principal reductions may prevent BofA from paying $850 million in penalties, according to the Wall Street Journal.
Fitch Ratings responded to the news stating that the 200,000 principal reductions will be “neutral to negative for some RMBS bondholders and potentially beneficial for the bank.”
Fitch suggests the loans most likely to qualify for the extended principal reductions will be those originated between 2005 and 2007.
“Because the bank has already reserved for penalties, any reversals could help BAC’s income going forward,” Fitch stated. “While the agreement will help the bank reduce the amount of penalties it owes over time, the aggregate best case benefit is moderate from a financial perspective.”
Of the five servicers participating in the settlement, BofA is set to pay the largest portion of the total $25 billion settlement. The bank will pay $3.24 billion to the government and $8.58 billion to borrowers.
Of BofA’s total, $1 billion is part of a separate settlement regarding loan origination issues for Countrywide, which BofA acquired in 2008.
While the other four servicers in the national settlement are being required to diminish principal so underwater borrowers have loan-to-value ratios of 120 percent or less, BofA will be reducing principal for about 200,000 homeowners to fall in line with current market values.
For some deeply underwater borrowers, this may result in reductions of more than $100,000.
The expanded principal reductions may prevent BofA from paying $850 million in penalties, according to the Wall Street Journal.
Fitch Ratings responded to the news stating that the 200,000 principal reductions will be “neutral to negative for some RMBS bondholders and potentially beneficial for the bank.”
Fitch suggests the loans most likely to qualify for the extended principal reductions will be those originated between 2005 and 2007.
“Because the bank has already reserved for penalties, any reversals could help BAC’s income going forward,” Fitch stated. “While the agreement will help the bank reduce the amount of penalties it owes over time, the aggregate best case benefit is moderate from a financial perspective.”
Monday, March 12, 2012
Facts on the 3.8% Health Care Tax
A 3.8 percent levy on certain investment income was included in healthcare legislation two years ago, and now misinformation about the tax’s application to home sales is being passed along over the Internet and e-mail, throwing some prospective home sellers into a panic. In actuality, very few owners will be affected by the new tax taking effect in 2013.
The tax will only be on investment income of upper income taxpayers. Included in the definition of investment income is capital gains from home sales above a certain amount and for households whose income is above a certain amount. This means individuals who make $200,000 a year or more, or married couples who earn at least $250,000 a year are affected. Additionally, the tax is only applied to home sales if the proceeds exceed $250,000 for an individual, or $500,000 for married couples. And there still are other income and tax particulars that are considered before the 3.8 percent tax is triggered.
The National Association of REALTORS® recommends that members become familiar with the tax, but avoid coaching their clients on the policy because the amount of tax will vary from individual to individual as the elements that comprise adjusted gross income differ from taxpayer to taxpayer. NAR has published a brochure on how the tax works, which is now available online.
Download the 3.8% tax brochure (PDF).
Source:NAR and "Realtors Say Despite Efforts, Tax Rumor Keeps Spreading," Glens Falls Post-Star (NY) (03/10/12)
The tax will only be on investment income of upper income taxpayers. Included in the definition of investment income is capital gains from home sales above a certain amount and for households whose income is above a certain amount. This means individuals who make $200,000 a year or more, or married couples who earn at least $250,000 a year are affected. Additionally, the tax is only applied to home sales if the proceeds exceed $250,000 for an individual, or $500,000 for married couples. And there still are other income and tax particulars that are considered before the 3.8 percent tax is triggered.
The National Association of REALTORS® recommends that members become familiar with the tax, but avoid coaching their clients on the policy because the amount of tax will vary from individual to individual as the elements that comprise adjusted gross income differ from taxpayer to taxpayer. NAR has published a brochure on how the tax works, which is now available online.
Download the 3.8% tax brochure (PDF).
Source:NAR and "Realtors Say Despite Efforts, Tax Rumor Keeps Spreading," Glens Falls Post-Star (NY) (03/10/12)
BofA to Reduce Mortgages of Some Underwater Borrowers
Bank of America announced that it will trim up to $100,000 off the mortgage principal of about 200,000 home owners. The bank’s principal reductions are part of the $26 billion foreclosure settlement between five major banks and state and federal officials.
Borrowers who are eligible must be 60 days or more overdue on their mortgage as well as underwater — owe more on their home than it’s currently worth. Mortgages also must be owned by Bank of America or serviced by the bank’s private investors; mortgages owned by Fannie Mannie, Freddie Mac, the Federal Housing Administration and the Veterans' Administration will not be eligible for the principal reductions.
Bank of America last week also announced a temporary moratorium on foreclosure sales of homes that are covered under the settlement.
Bank of America is the second largest mortgage service carrier, behind Wells Fargo.
Source: “Bank of America Reaches Deal on Housing,” The New York Times (March 8, 2012)
Borrowers who are eligible must be 60 days or more overdue on their mortgage as well as underwater — owe more on their home than it’s currently worth. Mortgages also must be owned by Bank of America or serviced by the bank’s private investors; mortgages owned by Fannie Mannie, Freddie Mac, the Federal Housing Administration and the Veterans' Administration will not be eligible for the principal reductions.
Bank of America last week also announced a temporary moratorium on foreclosure sales of homes that are covered under the settlement.
Bank of America is the second largest mortgage service carrier, behind Wells Fargo.
Source: “Bank of America Reaches Deal on Housing,” The New York Times (March 8, 2012)
Gov't Trims Half of Its Foreclosure Inventory
The government was able to chip away at its foreclosure inventory in 2011, reducing it by nearly half, HousingWire reports in analyzing financial statements from three government enterprises.
From the end of 2010 to 2011, Freddie Mac, Fannie Mae, and the Department of Housing and Urban Development saw a 49 percent reduction in the number of REO properties it owns. The three government enterprises held about 150,700 properties as of Dec. 31, 2011, compared to 296,000 at the end of 2010.
“The GSEs sold REOs at a record pace in 2011,” HousingWire reports. “Combined, both sold more than 353,000 previously foreclosed property for the year.”
Here’s a closer look by how much the government enterprises trimmed their foreclosure inventories:
HUD: Reduced its foreclosure inventory to about 32,000, a 47 percent drop from more than 62,000 it held at the end of 2010.
Fannie: Reduced its foreclosure inventory to more than 118,000, which is down 27 percent from about 162,000 at the end of 2010.
Freddie: Reduced its REO inventory to 60,500, down 16 percent from more than 72,000 in 2010.
Source: “Government-held REO Halved During Robo-Signing Freeze,” HousingWire (March 9, 2012)
From the end of 2010 to 2011, Freddie Mac, Fannie Mae, and the Department of Housing and Urban Development saw a 49 percent reduction in the number of REO properties it owns. The three government enterprises held about 150,700 properties as of Dec. 31, 2011, compared to 296,000 at the end of 2010.
“The GSEs sold REOs at a record pace in 2011,” HousingWire reports. “Combined, both sold more than 353,000 previously foreclosed property for the year.”
Here’s a closer look by how much the government enterprises trimmed their foreclosure inventories:
HUD: Reduced its foreclosure inventory to about 32,000, a 47 percent drop from more than 62,000 it held at the end of 2010.
Fannie: Reduced its foreclosure inventory to more than 118,000, which is down 27 percent from about 162,000 at the end of 2010.
Freddie: Reduced its REO inventory to 60,500, down 16 percent from more than 72,000 in 2010.
Source: “Government-held REO Halved During Robo-Signing Freeze,” HousingWire (March 9, 2012)
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