Maryland homeowners victimized by the robo-signing scandal, faulty foreclosure documents and other questionable foreclosure practices will receive up to $1 billion in benefits from the recent settlement reached by the government and the five largest mortgage servicers. Undoubtedly, Prince George County residents will receive a significant amount of the $1 billion because one-third of Maryland’s foreclosures emanate from that county.
The billion-dollar windfall represents Maryland's portion of a $26 billion agreement hammered out by state and federal negotiators, after more than a year of talks with Wells Fargo, Bank of America, J.P. Morgan Chase, Citibank and Ally Bank. Forty-nine states have agreed to the terms.
It is one of the largest financial settlements in the history of Maryland. The state plans to apply the funds to three primary areas to help Maryland homeowners affected by the foreclosure crisis:
- Over 80% or $808 million will go towards principal reductions associated with mortgage modifications.
- Borrowers who are current on their mortgage, and have a loan that is underwater, will receive $64 million for mortgage finance.
- Maryland homeowners who lost their homes in foreclosure will receive approximately $24 million of the settlement money, or an average check of $2,000.
Qualified homeowners with current mortgage payments or borrowers had mortgages previously serviced by any of the five major lenders, will have access to one of two types of programs when seeking damages.
Determining Eligibility for Assistance
The first type of program applies to borrowers have underwater mortgages. Lenders promise to refinance the mortgages of these homeowners into low-interest rate loans. The second program consists of principal reductions for loans that are not insured by Fannie or Freddie.
The agreement gives each mortgage servicer the leeway to develop its own standards for administering the settlement. However, servicers must follow specific guidelines as outlined in the agreement, including:
- the bank must offer help to homeowners
- homeowners must be current with monthly mortgage payment
- borrowers cannot have a late mortgage payment in the last 12 months
- homeowners cannot have a bankruptcy or foreclosure in the last 24 months
Homeowners who received a mortgage modification within the past 24 months do not qualify for assistance.
The above criteria apply to fixed- rate, adjustable-rate and interest-only mortgages with an initial term of five years or more. Mortgages with loan-to-value ratios greater than 100% also qualify for help. The loan must carry an interest rate of 5.5% or higher to qualify. FHA, VA and manufactured home mortgages do not qualify for assistance under this settlement.
Homeowners Should Speak to a Housing Counselor
David Paulson, spokesperson for the attorney general's office, states the agency has fielded over 1,500 phone calls from anxious homeowners trying to find out if they can obtain some measure of relief from the settlement. Most of the callers had previously spoken to a housing counselor, but did not receive help. According to Paulson, homeowners who did not receive assistance should go back to these counselors because the “rules have changed.”
Any homeowner who has made mortgage payments to one of the five mortgage servicers, or lost their home to foreclosure since 2008, may meet the eligibility requirements, which entitle him or her to assistance. The attorney general's office will work over the several months to compile a list of eligible clients from among the five servicers.
According to the Mortgage Bankers Association (MBA), homeowners should expect foreclosures in the state to accelerate, now that the servicers have an agreement in place. MBA anticipates foreclosures rates to trend up after the servicers have implemented new procedures for handling financially troubled homeowners.
The new agreement monitors how mortgage lenders manage homeowners in danger of foreclosing. They must offer the borrowers a variety of options designed to save them from foreclosure, such as refinancing to low-interest rate loans, loan modifications or, forbearance agreements.
This agreement follows a $1 million settlement between Maryland’s Consumer Protection Division and Wells Fargo in early January. The funds will compensate Maryland residents who lost their homes to foreclosure or are still in their homes, but are at risk.
The mortgage lender’s “Pick-a-Payment” mortgage program put borrowers in adjustable-rate mortgages, with teaser rate loans starting at around 1% interest. Many borrowers received mortgages that allowed them to pay less interest than the amount due on their loans. When the economy tanked, and interest rates adjusted, approximately 250 homeowners lost their homes to foreclosure because they could not afford the hike in their monthly mortgage payments.