At last, big mortgage lending banks agreed to pay $26 billion to settle claims that mortgage documents were “robo-signed” rather than handled individually on a case-by-case basis.
While the size of the settlement is unprecedented, and many provisions will benefit a segment of homeowners, the deal does not provide a comprehensive, systematic solution for residential mortgage foreclosure. Many experts agree that the best solution for homeowners, lenders and investors would be an overhaul of the nation’s bankruptcy laws permitting modification of mortgage loans based on current fair market value of homes. But lenders have adamantly opposed bankruptcy reform and politicians have been squeamish in forcing the issue.
The settlement requires banks to:
1. Reduce principal mortgage balances on 1,000,000 underwater homes
2. Provide homeowners a “single point of contact” with the bank when negotiating foreclosure relief
3. Pay $2,000 to each of 750,000 persons who lost their homes to foreclosure
4. Refinance some underwater mortgages at lower interest rates
5. Make foreclosure the last resort and delay foreclosure while negotiating foreclosure relief
The settlement does not:
1. Affect mortgages owned by Fannie Mae and Freddie Mac
2. Affect 10 million homeowners who owe more than their homes are worth
It is not clear how, or by whom the terms of the settlement will be enforced.