foreclosure settlement
who are in default or at risk of default on their loan payments. Principal reductions will yield lower payments and will give these homeowners a fair opportunity to preserve their homes. The banks must provide at least $3 billion to assist homeowners who are not currently delinquent on their payments but who cannot refinance their mortgage in order to take advantage of lower interest rates because the loanto-value ratio of their home is “upside down,” meaning that the amount of their mortgage is higher than the value of their home. In addition to principal reductions, the banks must: allocate approximately $5.2 billion for other forms of homeowner assistance including, but not limited to: facilitating short sales, which allow houses to be bought and sold even though the balance(s) due on the mortgage(s) on the home exceed(s) the value of the property; providing unemployed payment forbearance, which will defer payments for homeowners who are between jobs; giving relocation assistance for homeowners facing foreclosure; waiving of deficiency balances; and funding for remediation of blighted properties. Banks will be required to notify eligible homeowners of the availability of these programs.
To be eligible for most of them, borrowers must: be current on their mortgage payments; have a loan-to-value ratio in excess of 100 percent; and have a current interest rate on their mortgage of more than 5.25 percent. The refinanced rate must reduce monthly payments by at least $100.
Imposition of New Duties on Lenders and Servicers Of major importance are the provisions of the settlement agreement which place certain new affirmative obligations on lenders and servicers and prohibit them from engaging in certain improper mortgage servicing practices that were once widespread. Lenders and servicers will be required to offer loss mitigation alternatives to borrowers before pursuing foreclosure. They are also required to increase the transparency of their loss mitigation process, impose time lines to respond to borrowers, and restrict the unfair practice of “dual tracking,” whereby foreclosure is initiated while the borrower is participating, in good faith, in a loss mitigation process. Specific new servicing requirements include the following: • Information in foreclosure affidavits must be personally reviewed and based on competent evidence.
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