Borrowers have both applauded and also sharply criticized the recent mortgage settlement reached by the attorneys general of all fifty states with our country’s five major loan servicers. In response to alleged mortgage abuses engaged in by lenders, an agreement was reached to reduce the principal balance of some mortgages or to grant interest rate reductions.
Bank of America in particular has agreed to reduce the principal balances for approximately two hundred thousand homeowners by as much as $100,000.00. The typical homeowner who will benefit has a mortgage with a principal balance that is more than the home is currently worth, the so-called “underwater” mortgage. Further, homeowners with mortgages held by the major lenders such as Bank of America, JP Morgan Chase, Citibank, Wells Fargo and Ally are also covered by the agreement.
Other homeowners who believe that they were more prudent by remaining current on their mortgage payments or not borrowing against virtually all of the equity in their home, resent that other homeowners are benefitting from their missteps. The mortgage settlement is also controversial because it does not apply to mortgages with lenders besides the major five lenders, to loans insured by the Federal Housing Administration, or those loans owned by Fannie Mae or Freddie Mac. If a loan was sold to one of these entities, it may not be eligible for modification, even though the borrower had no choice or involvement in the loan sale process. Many borrowers have rightfully asked: What about me?
The guidelines for modifying mortgages have been in constant flux in recent years. Borrowers express frustration at untrained lender representatives who are unfamiliar with the current rules for “required” lender modification offers. Homeowners are also misguided by “advice” that they should be delinquent by a certain number of months in order to be considered for modification. Mortgage modifications are also often denied if the property involved is not a primary residence.
Our firm has experience in submitting modification packages to lenders and in achieving beneficial results for some borrowers, even though the modifications obtained were beyond those “required” by the lender. Obtaining certainty with respect to the disposition of properties will be helpful to the real estate market in general, as ideally borrowers will remain in homes that they can afford and the modified mortgage balance will be consistent with the current value of the home.