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Posted at 11:15 AM ET, 02/09/2012

What does the foreclosure settlement mean for you?

This post has been updated.

You might be wondering what the $26 billion foreclosure settlement with the big banks and states means for you, your home and the local housing market.

The answer is, it depends.

First, a little history. The settlement has to do with a lawsuit brought by several states against large banks handling a large volume of the nation’s foreclosures: Bank of America, Wells Fargo, J.P. Morgan Chase, Ally Financial and Citigroup. These banks, the states’ attorneys general alleged, had engaged in fraudulent documentation and flawed processes in their attempt to process foreclosures as quickly as possible. This became known as the “robo-signing” scandal.

On Thursday, the U.S. Justice Department announced a settlement with the firms, the biggest such settlement since the settlement with the tobacco industry.

For homeowners and those whose homes were recently foreclosed, the deal means that you could receive a cash payment, a principal write down or refinancing with the money from the settlement, depending on your specific situation.

Only those borrowers who used the five banks involved in the settlement are eligible. If that means you, you are urged to visit a new government Web site to find out how you can benefit from the deal. But, the government is urging patience. Whether you are eligible and what you are eligible for depend on many factors, such as your bank, whether you are current on your mortgage and which state you live in.

From the Web site:

If you have had a mortgage or currently have your mortgage through the five banks listed above, each bank has set up a toll-free number to get the process started.

Ally/GMAC: 800-766-4622

Bank of America: 877-488-7814

Citi: 866-272-4749

JPMorgan Chase: 866-372-6901

Wells Fargo: 800-288-3212

Here are three categories of consumers who could benefit from the settlement, from the government’s Web site:

  • Homeowners needing loan modifications now, including first and second lien principal reduction.  The servicers are required to work off up to $17 billion in principal reduction and other forms of loan modification relief nationwide.

    State attorneys general anticipate the settlement’s requirement for principal reduction will show other lenders that principal reduction is one effective tool in combating foreclosure and that it will not lead to widespread defaults by borrowers who really can afford to pay.

  • Borrowers who are current, but underwater.  Borrowers will be able to refinance at today’s historically low interest rates.  Servicers will have to provide up to $3 billion in refinancing relief nationwide.
  • Borrowers who lost their homes to foreclosure with no requirement to prove financial harm and without having to release private claims against the servicers or the right to participate in the OCC review process.  $1.5 billion will be distributed nationwide to some 750,000 borrowers.

But don’t wait for your check in the mail or your payment to change quickly. It will take some time for each state to set up the structure to take in the applications, evaluate them and decide who is eligible.

Maryland

In Maryland, Attorney General Douglas F. Gansler estimates that as many as 40,000 homeowners are eligible for the program, as the state is expected to receive $960 million as part of the settlement deal.

Gansler said his office will set up a call center staffed by 10 people who are trained to help evaluate residents’ situations. The hotline is 1-888-743-0023. Marylanders who make or previously made mortgage payments to the five banks are also urged to contact the Maryland HOPE hotline at 1-877-462-7555 or go to their Web site.

“The relief provided by this agreement redresses mortgage servicing misconduct,” Gansler said. “It does not release the banks from criminal liability. It does not prevent individuals from bringing their own claims,” Gansler said in a statement. “And it will not stop our office from pursuing the banks over misconduct in the securitization of mortgages, fair lending violations, or other fraud. People should expect to see further action.”

The District of Columbia

The District is slated to receive $40 million and the city will receive a $4.6 million payment, according to a press release from Attorney General Irvin B. Nathan. The District is urging residents to contact their banks at the toll-free numbers listed above. The attorney general’s office said several thousand D.C. homeowners could be eligible for the program.

Virginia

Virginia Attorney General Ken Cuccinelli said the state will receive $480 million for its share of the bank settlement, of which $410 million will be used for loan modifications. Included in those funds is $31 million for cash payments to those who underwent the loan modification process from 2008 through 2011. Virginia will also receive a $69.6 million payment as a result of the settlement. More than 15,000 Virginians could be eligible for the program, Cuccinelli’s office said.

The attorney general’s office has developed a form for residents to fill out. It asks that residents who have gone through a foreclosure between Jan. 1, 2008 and Dec. 31, 2011 and have moved during that process to go to the Attorney General’s Web site and fill out the form.

Cuccinelli has created this YouTube video answering questions about the settlement:

Related content:

States reach $26 billion settlement on foreclosures with banks

FAQ: How did we get here?

D.C. homeowners eligible for $40 million

Obama: ‘Need to keep doing everything we can to help homeowners’

Timeline of events: Foreclosure settlement


Where We Live is interested in following homeowners who are applying through this program. If you are interested in sharing your experience, please email us at realestate@washpost.com

By  |  11:15 AM ET, 02/09/2012

 
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