Bank settlement to bail out some underwater homeowners
Yesterday's $25 billion agreement between five big U.S. banks and state attorneys general could help some three million homeowners who owe more than their homes are currently worth.
David Brancaccio: The $25 billion settlement between states and those banks that botched the foreclosure process is supposed to help homeowners over time. But right away, experts say there will be an ugly downside of the deal that has not been getting much attention. As the settlement talks dragged on for more than a year, many banks slowed down the pace of foreclosures. Now that the settlement's done, expect a flood of evictions and heartache. More foreclosures means other home prices could drop in the coming months.
If new foreclosures are an unintended consequence of the settlement, some of its intended consequences should help the market. For instance, the deal also provides $3 billion to help people who are paying their mortgage on time but owe more than their house is worth. But how do you know you are "underwater" like this? And whether you qualify for settlement cash?
Marketplace's John Dimsdale reports.
John Dimsdale: An estimated 28 percent of homes are underwater nationwide, and home values continue to fall. Homeowners who used to be only slightly underwater now find themselves in the deep end. And even once home prices start back up, Zillow.com chief economist Stan Humphries says underwater homeowners shouldn’t expect a quick turnaround.
Stan Humphries: So even while some of these markets are going to bottom in 2012, we believe they aren’t going to see robust home price appreciation for another two to four years.
Some three million underwater homeowners will qualify for loan modifications that make refinancing possible. To find out if you’re eligible, Pamela Banks with Consumers Union says check with your mortgage servicer.
Pamela Banks: If for any reason they don’t get the response they need, then they should report that to their state attorney general because that’s what they’re going to be policing to make sure consumers get the help they need.
The attorneys general say they’ll be contacting eligible homeowners, but Banks says don’t wait for the call.
In Washington, I'm John Dimsdale for Marketplace.