foreclosure settlement

It’s official. Florida Attorney General Pam Bondi signed off on the record $25 billion joint federal-state settlement agreement with the nation’s five largest mortgage servicers over foreclosure abuses and unacceptable nationwide mortgage servicing practices. Forty-nine of the fifty states have approved it, with Oklahoma being the lone hold out.

According to the Florida Attorney General’s official press release, the settlement generally releases civil claims related to robo-signing, other foreclosure-related abuses, and loan origination misconduct, but it provides no release of criminal claims or of claims related to mortgage securitization.

So what does this mean for Florida homeowners and Florida’s housing market? That remains to be seen. According to the press release, Florida’s share of the total monetary benefits under the settlement will be approximately $8.4 billion.

• Florida borrowers will receive an estimated $7.6 billion in benefits from loan modifications, including principal reduction, and other direct relief.
•  Approximately $170 million will be available for cash payments to Florida borrowers who lost their home to foreclosure from January 1, 2008, through December 31, 2011, and suffered servicing abuse.
•  The value of refinanced loans to Florida’s underwater borrowers would be an estimated $ 309 million.
•  The state will receive a direct payment of $350 million.

Sounds like a lot of money, but how soon can we expect to see any actual relief? My prediction is that we won’t anytime soon. The Tampa Bay Times is reporting that at least one of the banks seems to agree.

‘The immediate results are not going to be all that pleasant,’ said Mark Vitner, an economist with Wells Fargo. His bank is one of the biggest lenders in Florida as well as a participant in the settlement. ‘The amount of foreclosures will actually increase and there will be some additional downward pressure on home prices.’

According to the Tampa Bay Times article, here’s how the settlement will be carried out:

• Because of the complexity of the agreement — the second-largest civil settlement in U.S. history next to 1998’s tobacco industry deal — federal officials said borrowers will not immediately know if they are even eligible. And the timetable for a payout is lengthy.
• Over the next 30 to 60 days, negotiators will pick an administrator to handle logistics of the settlement and to monitor compliance.
• Then it will take another six to nine months for the administrator, the attorneys general of 49 states (Oklahoma did not participate) and the mortgage servicers to identify which homeowners would qualify for immediate cash payments, principal reductions and refinancing. Those eligible will receive letters.
• The settlement will be executed over the next three years.

Reaction to the settlement is mixed. Here are links to a few good articles which take a critical look at the settlement – huffingtonpost.com, firedoglake.com, and nakedcapitalism.com – 12 Reasons You Should Hate the Mortgage Settlement.

My predictions are:

• Florida homeowners are not going to be unhappy about this settlement a year from now.
• Those who lost their homes to robosigned (i.e., fraudulent or forged) documents are not getting their homes back and a check for a few hundred or a few thousand isn’t going to make them feel better about the experience.
• It’s going to be an uphill battle for anyone to actually receive the cash payments.
• The principal reductions and refinances are going to be just as frustrating and difficult to obtain as loan modifications are today.
• Even though the settlement doesn’t release the bankers from criminal liability, don’t hold your breath waiting to see any criminal prosecutions. If there are more than a handful, I will be shocked.

Check back here in a few weeks for a follow-up article once the actual settlement document is available.