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Who benefits from the national mortgage settlement?

A foreclosure sign is seen in front of a bank-owned home for sale in Las Vegas, Nev.

Tess Vigeland: We need to explore a legal settlement involving the nation's five biggest banks and attorneys general from nearly all of our 50 states. This is about that so-called robosigning scandal, when banks rubber-stamped some of the paperwork involved in foreclosures. Many people were pushed into default on their home loans because of that shoddy paperwork, some even lost their houses.

It's a $25 billion agreement and Marketplace's Adrienne Hill is here with the details. Hello!

Adriene Hill: Hey Tess.

Vigeland: So $25 billion, huh? Who's gonna get a piece of that action?

Hill: Well, there are a couple of groups of people this is gonna help. The firs is people who owe more than their home is worth and are way behind on their payments. So people may be even near default. The banks have set aside billions of dollars in this settlement to reduce the loan principal for these borrowers in an effort to keep them in their home. They could be getting somewhere in the neighborhood of $20,000 in principal reduction.

Borrowers who are current on their mortgage, but also underwater will be helped out. That's gonna come in the form of refinancing their mortgages. And then some of the settlement money is gonna go to people who were foreclosed on between 2008 and the end of last year. And they could get around $2,000 each, depending on how many people actually qualify for the money.

Vigeland: $2,000, when you've lost your home?

Hill: $2,000 when you've lost your home.

Vigeland: All right, well, who misses out on this deal then?

Hill: Well it turns out the state of Oklahoma struck its own agreement, so Sooners won't be a part of this settlement I'm talking about. But the fact is, actually, that the vast majority mortgage holders aren't gonna benefit from this.

Vigeland: Why is that?

Hill: Well, loans owned by Freddie Mac and Fannie Mae aren't included in the settlement -- and they own most of the mortgages in the country. So the settlement is only for people whose mortgage is serviced by Ally Financial, Bank of America, Citigroup, JPMorgan Chase and Wells Fargo -- and again, not owned by Freddie Mac and Fannie Mae.

Vigeland: This sounds awfully complicated.

Hill: It is. But if you don't know who owns your loan, I've posted some information and links on our website to help you figure that out. And of course, a mortgage servicer, that's the company that you actually write your check to every month.

Vigeland: Assuming that your mortgage was serviced by one of these banks and you don't live in Oklahoma -- how do you know if you qualify for relief?

Hill: Well, you don't yet. It's a complicated agreement, it's going to take about three years to fully get done. So some people it's just not quite clear exactly who's eligible and who's not. The settlement group says people who are affected, who are eligible for relief will be contacted directly. But if you need more information, you can call the banks.

Vigeland: But wait a minute! If you lost your home, how are they gonna know where to send the letter?

Hill: They're asking people who were foreclosed on or people who just might not be easy to locate right now to contact their state attorney general. And so I've posted all that information on our website also.

Vigeland: If you are one of the folks who benefits from the deal, when do you start seeing some of the upside here?

Hill: Not tomorrow. Over the next month or so, the settlement negotiators are going to try to decide who will handle the details of the settlement. Once that's done, they're going to start identifying the home owners or former home owners who might be eligible for refinance, principal reduction or this cash pay out. And they're going to send those people letters. Right now, those letters are expected to go out in the next six to nine months as I understand it. But again, the settlement could take as long as three years, start to finish.

Vigeland: Marketplace's Adriene Hill. Thanks for the explanation and we'll see you on the web.

Hill: Yes, thank you.

About the author

Adriene Hill is a senior multimedia reporter for the Marketplace sustainability desk, with a focus on consumer issues and the individual relationship to sustainability and the environment.
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Shame on Tess for this unfortunate and poorly researched statement: "Many people were pushed into default on their home loans because of that shoddy paperwork, some even lost their houses." First, there is not a single recorded instance of someone losing their home WHO MADE ALL OF THEIR MORTGAGE PAYMENTS ON TIME. That is one of the single biggest misconceptions perpetuated by the press about the bank's paperwork crisis. If you review all the many hundreds of articles that have been written about this, you will not find a single one profiling a borrower who lost his/her home after making all payments. Despite the bank's poor paperwork practices, its seems clear that they handled this basic function correctly. Second, it defies imagination how a loan servicer's poor back office paperwork practices could have "pushed" a borrower to default. Borrower's default when they fail to make loan payments, which in turn happens when they lose a job or simply buy more house than they can afford. Neither has anything to do with whether the borrower's loan servicer is handling its back office paperwork correctly.

I'm not involved in the settlement so I don't know exactly why the banks agreed to pay what they did. Its a fair question to ask why banks would agree to pay billions to borrowers who have suffered no actual harm, which is normally the basis for recovery in our legal system. I suspect history will show that they agreed to pay billions (1) to clean up title issues on foreclosed homes created by the controversy, and (2) b/c the banks are playing a shell game in counting writeoffs and payments they would otherwise have made as settlement payments, so the real cost is far less than advertised.

The real crime here is the part where the banks agreed to pay $1,500 to 2,000 to foreclosed borrowers, and nothing to borrowers who make all their payments faithfully, like me.

Actually, there have been a great many stories published about people who were foreclosed upon while still remaining current on their payments. In some cases, banks actually repossessed homes owned by current mortgage holders, and in other cases, took possession of houses bought with cash! The paperwork that these banks did was so incredibly shoddy that they recorded wrong addresses for homes, and used out-of-date records involving previous owners when dealing with borrowers. The banks did not "handle the basic function" of foreclosure, in other words.

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