What’s the deal with the mortgage deal?

11 02 2012

The all too familiar story of homeowners in over their heads owing more on their home than it is worth may have a twist! A $26 billion foreclosure settlement mortgage deal with the nation’s largest banks, will provide some relief to homeowners under pressure.

Here is a summary of the breakdown.

  • About $17 billion will go to reducing the principal owed by about 1 million homeowners. This would result in an average reduction of approximately $17,000 per homeowner.
  • Up to 750,000 homeowners who are current on their mortgages but owe more than their house is worth may be eligible to refinance their loans at lower rates. Roughly $3 billion from the deal has been set aside for this.
  • Up to $2,000 upfront to home owners who were foreclosed on between 2008 and 2011 and meet other criteria.

The mortgage deal does have a limited reach. It is not available to those whose mortgages have been sold to the government-sponsored mortgage guarantors Fannie Mae and Freddie Mac. In addition according to the most recent estimate from the Mortgage Bankers Association, there are roughly 1.5 million homeowners who are 90 days or more delinquent on their mortgages but not yet in foreclosure. An additional 1.9 million are already in the foreclosure process. They may not be eligible for relief.

With that it is clear that there are many who would benefit from additional relief, but this mortgage deal seems to be a step in the right direction of holding banks more accountable when it comes to mortgages. Hopefully this will also lead to banks putting additional background checks in place to verify that mortgage applicants really do qualify for the loan they desire and are not biting off more than they can chew.

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