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What homeowners need to know about the $25 billion national mortgage settlement

By Mike Nickells

On February 9th, 2012 the U.S. government and the five largest banks agreed on a mortgage settlement of $25 billion. This money is to compensate the American public for the damages these banks caused due to their fraudulent servicing practices and foreclosure processes.

This is the largest multi-state agreement since the national tobacco suits in 1998. The settlement involves 49 of the 50 states, the only holdout being Oklahoma. The five banks are Ally Financial, Bank of America, Citibank, J.P. Morgan Chase, and Wells Fargo, which altogether service 60% of all mortgages in the United States.

The government is still conducting negotiations to add more banks to the settlement which could raise the overall settlement to as much as $45 billion. These negotiations do not include Fannie Mae or Freddie Mac.

A portion of the settlement will go to the state and federal governments, but most of it will go to former and current homeowners of the 49 participating states. The money that the federal government receives will go to the FHA Capital Reserve Account, the Veterans Housing Benefit Program Fund, and the Rural Housing Service. The state governments’ payments will be used to fund housing counselors, legal aid, and other similar programs determined by state attorneys general.

Here’s how the banks’ financial obligations are divided:

In addition to the financial compensation, the banks also have new restrictions stopping them from foreclosing on borrowers being considered for loan modifications, and home-owners will now have the right to appeal modification denials.

Compliance with all parts of the settlement will be overseen by Joseph A. Smith who will monitor this judgement. He can enforce the rulings on these banks with penalties of up to $1 million per violation and up to $5 million for certain repeat violations.

How much money is coming here?

$245 million of the $25 billion goes to Kansas and Missouri:

$155.5 million to Missouri homeowners

$40 million to the Missouri state government

$35.5 million to Kansas homeowners and

$14 million to the Kansas state government

Who is eligible and what can they expect to receive?

• People who have lost their homes to foreclosure between January 1st, 2008 and the end of last year are eligible to receive roughly $2000.

• People who owe more than their house is worth and are behind on their mortgage payments are eligible to have the principal on their loan reduced and a new lower interest rate.

• People that have kept up on their mortgage payments but are still underwater on their house are also eligible to have the principal on their loan reduced and a new lower interest rate.

Homeowners who are still current on payments but are underwater should move proactively on the judgement. This part of the settlement is in a use-it-or-lose-it condition. If the state doesn’t find qualified people to receive these funds it will be turned over to another state to use. However, all participants will have to be patient as the plan provides 30 to 60 days to select an administrator who would work 6 to 9 months with state officials and banks to decide on eligibility. The banks have three years to fulfill their obligations. This settlement does not prevent any claims by individual borrowers who wish to bring their own lawsuits.

How to find out if you are eligible

Homeowners will need to contact their lenders.

Ally Financial: 800-766-4622

Bank of America: 877-488-7814

Citibank: 866-272-4749

J.P. Morgan Chase: 866-372-6901

Wells Fargo: 800-288-3212

Every participating state also has a hotline to provide more information.

Missouri Hotline: 855-870-7676

Kansas Hotline: 800-432-2310

People can also go to www.nationalmortgagesettlement.com for more information.