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The Mortgage Forgiveness Debt Relief Act of 2007 (“the Act”) has been…
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.
The Making Home Affordable Program is a government-sponsored refinance and loan modification program to help struggling homeowners keep their home. The Making Home Affordable Program includes the Home Affordable Modification Program (HAMP) and the Home Affordable Refinance Program (HARP). The Making Home Affordable Program also includes the Home Affordable Foreclosure Alternatives (HAFA) Program for individuals who wish to transition to more affordable housing.
Home Affordable Modification Program (HAMP)
To qualify for HAMP, a homeowner must:
• Own a one to four-unit home that is their primary residence
• Have received their mortgage on or before January 1, 2009
• Have a mortgage payment (including taxes, insurance, and homeowners’ association dues) that is more than 31 percent of their gross (pre-tax) monthly income
• Owe an amount that is less than or equal to $729,750 on their first mortgage for a one-unit property (there are higher limits for two or four-unit properties)
• Have a documented financial hardship
To apply for HAMP, homeowners must submit an Initial Package to their mortgage servicer, which includes:
• A complete Request for Modification and Affidavit
• A complete Tax Authorization Form (IRS Form 4506T-EZ)
• Proof of Income
Mortgage servicers will determine whether homeowners qualify for a HAMP modification. Homeowners who qualify must complete a trial period of three or four months to demonstrate that they will be able to make reduced payments on time before their mortgage will be permanently modified.
The Department of Housing and Urban Development recently announced a $25 billion settlement between the five largest banks in the U.S. to address mortgage loan servicing and foreclosure abuses. The settlement includes Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial. Most of the $25 billion settlement is supposed to go toward reducing mortgage payments for troubled homeowners.
There are two big ways this settlement differs from previous programs. For one, it’s the only large-scale program that includes principal reductions. Banks will be required to do partial loan forgiveness. Secondly, compliance from the lenders is mandatory, which distinguishes it from other programs that have been voluntary.
Bank of America Home Loans, one of the five major banks involved in the settlement, has purportedly been reaching out to customers who may be eligible for forgiveness of a portion of the principal balance on their mortgage under the terms of the settlement.
Bank of America began sending out letters in a targeted outreach to more than 200,000 potential candidates for this assistance. The bank estimates average monthly savings of 30 percent on mortgage payments of customers who qualify for this program.