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The $25 Billion mortgage settlement recently announced and filed in federal court in Washington D.C. is intended to help to relieve those in difficulties with their mortgages.
The government is expected to monitor closely the banks involved to make sure that the money does in fact reach those borrowers for whom it is intended. The five banks; Bank of America, Citigroup, JP Morgan Chase, Wells Fargo, and Ally Financial are to provide the money which is expected to be instrumental in making readjustments to help about a million house purchasers who are at the moment struggling financially due to the present situation with their mortgages.
Banks were accused of misleading borrowers who were seeking modifications on their loans as well as of pursuing faulty foreclosures. They have not admitted to having done these things but have agreed to the settlement arranged by the government in order to “remediate” harms allegedly resulting from the alleged unlawful conduct.
It is likely that in a hearing in which the settlement is to be approved by a judge, the Association of Mortgage Investors will request that the court limit the modifications for investor owned loans. This group feel that those who invested in mortgage-backed securities were not included in the settlement talks but might find that mortgage modifications have financially damaging results for them. The five banks according to the settlement, over a period 3 years, will reduce the amount of mortgage debts and restructure loans in difficulties. Designed to be of some help to about 1 million property owners who are struggling, this settlement has been seen as historical and is being enthusiastically promoted by the Obama administration.
Also Federal and State governments will be receiving $5 billion of which $1.5 billion is to be used for those whose homes were lost due to foreclosure affording payments of $2,000. Officials of the Obama administration are optimistic about the measure and feel that it could be the start of the housing recovery that everyone is hoping for. An independent monitor will make sure that the new standards for processing mortgage payments are complied with. There will be a sampling process that is described as “very specific”, as well as test questions and error thresholds, the results of which will be reported on publicly. This will mean strong penalties if they don´t follow the directions on how the banks should behave.
Although the details of the investigations into banking misdemeanors have not been revealed the settlement was filed as one lawsuit and five consent judgments with the banks. There is encouragement for most of the mortgage assistance to be implemented rapidly with a limit of 3.5 years. Relief will be provided to borrowers by cutting the debt. It is expected that banks bring the mortgage payments to 31% of income and with the value of the new loan not exceeding 120% the value of the property.
The settlement documents also show that banks are to pay for the alleged defrauding of the government by lenders who sought federal mortgage insurance on risky loans. There were successful negotiations by Ally Financial and the Justice Department reducing the amount they have to pay to $110 million on the understanding that they give good terms when dealing with struggling borrowers in its portfolio. So hopefully the government will continue to strictly oversee the $25 Billion mortgage pact.
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