Refinancing For Debtors ‘Underwater’
Attorney General Eric T Schneiderman announced last Thursday, Feb. 9, a $136 million settlement for New York with the nation’s five largest mortgage servicers over foreclosure abuses, the most per “underwater” borrower of any state in the nation, and the fourth highest dollar amount nationwide as part of the federal-state settlement.
In addition to penalties for past abuses, the settlement includes direct relief to victims of wrongful foreclosure conduct, loan modifications including principal reductions for struggling homeowners, and funds that can be used to support foreclosure legal assistance and housing counseling programs.
The settlement, which also imposes strong national standards for mortgage servicing, fulfills Schneiderman’s demand that he retain the right to bring legal action over misconduct that has not yet been investigated, a right that was absent from earlier settlement proposals.
“Thanks to the advocacy and support of Americans across the country, we have preserved the right to continue investigating the misconduct that led to the bubble and crash of the housing market. For a year, the proposed settlement was simply inadequate, and I applaud all those who fought with us to hold banks accountable for their role in the foreclosure crisis, provide meaningful relief to New York’s struggling homeowners, and allow a full airing of the facts to ensure that abuses of this scale never happen again,” said Schneiderman. “On multiple fronts, we will continue to investigate the mortgage crisis that has impacted communities in every corner of this state, and ensure that justice and accountability prevail.”
Over the past year, Schneiderman fought for a national settlement, on behalf of New York’s homeowners, for mortgage servicing abuses, mak- ing it clear that he would not sign an agreement that would give financial institutions broad legal immunity for conduct that had not been investigated. Until recently, the language in settlement proposals had been too broad to justify reaching an agreement.
The settlement announced last Thursday will allow the Office of the Attorney General and other agencies to investigate and bring appropriate civil and criminal actions.
New York’s estimated share of the guaranteed cash payments in the settlement is $136 million, the fourth highest in the nation. New York will be able to distribute these funds to legal aid, homeowner assistance and advocacy organizations to help distressed individuals facing foreclosure or servicer abuse.
Among the legal claims outlined in the settlement are:
– All criminal claims.
– All claims based on mortgage securitization misconduct, under securities fraud statutes, including New York’s Martin Act, and other sources of law. This includes securitization claims based on servicing, foreclosure or origination-related facts.
– All claims directly against the private national mortgage electronic registry system known as MERS, as well as claims against financial institutions for the use of MERS in the Attorney General’s recently filed lawsuit over a wide range of deceptive and fraudulent practices in New York.
– All claims for violations of fair lending laws that relate to discriminatory practices in loan origination.
– All tax claims, including any claim that the failure to transfer mortgage loans to the securitization trusts or other conduct violated tax rules.
– All claims by counties for lost mortgage recording fees.
– All claims and defenses held by private and third parties, including those held by individual mortgage loan borrowers.
The settlement preserves the legal authority of the Schneiderman-led Residential Mortgage-Backed Securities Working Group announced by President Obama in the State of the Union address. This joint investigation brings together the Department of Justice (DOJ), several state law enforcement officials, and other federal agencies to investigate those responsible for misconduct contributing to the financial crisis through the pooling and sale of residential mortgagebacked securities. It builds upon ongoing state and federal investigations, while also launching new ones.
The new working group includes hundreds of staff, including an initial commitment of 55 Department of Justice attorneys, in addition to analysts, agents and investigators. As it begins its work, 15 federal prosecutors- civil and criminal-and 10 FBI agents and analysts will be initially assigned to the working group. An additional 30 attorneys, investigators and other staff from U.S. Attorneys’ Offices around the country will join the working group’s efforts, in addition to existing state and federal investigations into similar misconduct under those authorities.
In the State of New York, an average of one in 10 mortgages is at risk of foreclosure. The approximate number of individuals living in homes that are either in foreclosure or at risk of foreclosure (based on typical household size for each distressed mortgage) exceeds the populations of Buffalo, Rochester, and Syracuse combined.
The below figures for New York homeowners are estimates of the U.S. Department of Housing and Urban Development. The specific amounts are dependent on eligibility requirements and are not guaranteed.
– Payments to victims of wrongful foreclosure: $13 million estimated.
– Benefits estimated from refinance program: $140 million.
– Homeowners’ benefits from loan modifications: $495 million estimated.
Because of the complexity of the mortgage market and this agreement, which will be performed over a threeyear period, borrowers will not immediately know if they are eligible for relief. It will take between 30-60 days to appoint a settlement administrator, and banks will be conducting a vigorous search to identify eligible borrowers and this may take several months.
For loan modifications and refinance options, borrowers may be contacted directly by one of the five participating mortgage servicers.
For payments to foreclosure victims, a settlement administrator designated by the attorneys general will send claim forms to eligible persons (Qualified individuals may be eligible if they were foreclosed on between Jan. 1, 2008 and Dec. 31, 2012).
Even if a borrower is not contacted, or if their loan is serviced by one of the five settling banks-Bank of America, Citi, Chase, GMAC and Wells Fargo-the attorney general encourages them to contact their servicer to see if they are eligible. It may take between six and nine months to be contacted.
The phone numbers for the settling banks are as follows:
– Bank of America: 1-877-488- 7814.
– Citi: 1-866-272-4749.
– Chase: 1-866-372-6901.
– GMAC: 1-800-766-4622.
– Wells Fargo: 1-800-288-3212.