The landmark $25 billion settlement reached Feb. 9 by the country”™s five biggest mortgage servicers and 49 states likely have a smaller effect on New York homeowners than on those in states more affected by the housing crisis, experts said last week.
The settlement includes $17 billion in principal reduction and loan modifications for borrowers who are facing foreclosure, $3 billion to help borrowers who are current on their payments but who owe more than their homes are worth, and cash payments of $2,000 for each of the roughly 750,000 homeowners who lost their homes to foreclosure between 2008 and 2011.
Additionally, the 49 states that were included in the settlement receive $4.25 billion in guaranteed cash payments while the federal government receives $750 million.
The banks that participated in the settlement include Bank of America Corp., Wells Fargo and Co., JPMorgan Chase and Co., Citigroup Inc. and Ally Financial Inc.
The U.S. Department of Housing and Urban Development estimates that the refinance and modification programs and foreclosure payments will impact approximately 46,000 New York borrowers.
The state will receive $136 million in guaranteed cash payments, Attorney General Eric Schneiderman announced Feb. 9.
New York homeowners eligible for loan modifications and refinancing under the settlement terms will receive an estimated $495 million and $140 million, respectively, while homeowners who were wrongfully foreclosed on will receive an estimated $13 million.
Shelby D. Green, professor of real estate transactions and finance at Pace University Law School, said the bulk of the settlement”™s benefits will go to states like California, Florida, Nevada and Arizona where the housing market is weakest.
The other major change brought about by the settlement will be higher accountability standards for mortgage servicers who were accused of reaching foreclosure decisions without due diligence, resulting in the foreclosures of homes whose owners were not in default.
“The settlement agreement was prompted by misconduct by the mortgage servicers who signed off on foreclosures automatically without verifying that the homeowners were in default,” Green said, adding that the settlement would “establish that procedures for accounting and bookkeeping are accurate.”
However, several economists have said that because of the sheer depth of the housing crisis, the settlement will have a less pronounced effect on the overall housing market.
“This agreement will help the housing market move ahead in 2012 in a small way. But it is hardly a game changer,” said Patrick Newport, U.S. economist at IHS Global Insight, an international financial analysis firm with offices in New York City.
As part of the settlement, Schneiderman said that states will retain the right to bring criminal and civil legal action against the five banks over mortgage-related misconduct that has not yet been investigated.
Mortgages that are serviced by Fannie Mae and Freddie Mac were not covered under the terms of the settlement.
