Big 5 Settlement Provides Relief For Some Arizona Homeowners

On February 9, 2012, the attorney generals from all 50 states entered into a settlement agreement with five of the largest mortgage lenders in the country. This settlement agreement was subsequently submitted to federal court, and was approved on April 4, 2012. The five mortgage lenders agreeing to the settlement were Bank of America, Chase, Citibank, GMAC/Ally, and Wells Fargo.

The settlement targeted changes in these lenders foreclosure practices which were done in contravention to state and federal law. Included among those practices were the now infamous “robo-signing” (in which mortgage lender’s employees signed foreclosure affidavits under oath without reviewing the accuracy of the sworn statements), and dual-tracking (the practice of offering loan modifications while simultaneously proceeding with foreclosure). These practices, and others identified in the settlement agreement, are believed to have led to many improper foreclosures and exacerbated the housing crisis.

The settlement also provides monetary relief aimed at redressing several different issues. First, the settlement provides $17 billion to assist borrowers to stay in their homes. No less than 60% of this amount will be utilized to reduce the principal balances on loans now in default or at risk of default. Second, $5.2 billion will be allocated to facilitate short sales, payment forbearance for those caught between jobs, relocation assistance, remediation for blight, and even waiving deficiency balances.

Another $3 billion will assist those homeowners who cannot refinance because their loans are underwater (i.e. negative equity). Eligibility requirements limit this relief to those who have interest rates over 5.25%.

Those who actually loss their homes to foreclosure on or after January 1, 2008 through December 31, 2011, may be eligible for a uniform payment. Those eligible will be contacted. Anyone entitled to funds under this portion of the settlement agreement may do so without waiving any other claims they have against their lender. If you believe you are eligible and have not been contacted, you may contact the Arizona Attorney General’s office to leave your relevant information.

Other significant non-monetary relief includes: a requirement to establish a single point of contact for borrowers seeking assistance from their lender in regards to loss mitigation; automatic review when the lenders review loss mitigation requests, with a right by the borrower to appeal; and a requirement to expedite and facilitate short sales.

The approved settlement agreement establishes an independent Monitor to oversee the lenders’ compliance with the terms of the settlement agreement and provides stiff monetary penalties for failure to comply.

Keep in mind, however, that the terms of the settlement agreement will be phased in over a period of time. The reforms should all be in place by October, 2012. Other portions of the settlement will be completed over a three year period of time. Cash payments are expected to begin
around the first quarter of 2013.

Finally, remember that only those Arizona homeowners which had or currently have mortgages serviced by Bank of America, Chase, Citibank, GMAC/Ally, and Wells Fargo are entitled to this relief. California has already enacted legislation that mimics some of the relief in the settlement agreement and extends it to all mortgage lenders/services. Hopefully, Arizona will follow suit.