More details are coming out about the specifics of the recent mortgage settlement . As I wrote last week, the settlement was for $25 billion and the settlement was with five of the nation’s largest banks: Ally Financial (GMAC), Bank of America, Citigroup, J.P. Morgan Chase and Wells Fargo. However, excluded from this settlement are loans purchased by Fannie Mae, Freddie Mac or insured by HUD (FHA loans). This excludes more than 50% of all mortgages.
In the Chicago area (and especially the south side and south suburbs), a huge percentage of homes are underwater. Foreclosures and short sales make up more than 50% of available listings in many communities. While the mortgage settlement itself is limited in the mortgages directly involved, the changes outlined will probably flow to the greater market. .
1. There is expected to be an acceleration in the processing of foreclosures. There was a significant slowdown in foreclosures since the 4th quarter of 2010 while this challenge on the banks’ handling of foreclosures was being settled. Illinois has a large shadow inventory of unreleased foreclosures so expect a much higher inventory of foreclosures in 2012. This affects not only homes where foreclosures were fully processed but those where there was a holding pattern.
2. The 49 state’s attorney generals (all except Oklahoma) will have oversight over the implementation of this settlement.
3. Banks are encouraged to work with homeowners to provide loan modifications or short sales to struggling homeowners. Some of the key protections for borrowers seeking loan modifications:
a. Banks/servicers must review and make decision of completed loan modification applications within 30 days of receipt.
b. Banks must stop practice of loan modification consideration with simultaneous foreclosure proceedings (dual track foreclosures).
c. The bank must establish a single point of contact for each homeowner who reaches out to the bank due to difficulty making their loan payments.
4. The short sale process for many banks is expected to be streamlined making it easier and quicker for homeowners (we’ll see). Banks are seeing the value of short sales vs. modifications since 35-50% of loan modifications end up defaulting again. The banks will get settlement credit for short sales.
5. Although some news reports are giving the impression that banks will start reducing principal balances on loans, don’t expect a lot of them. Principal reductions are one option but loan modifications are more likely. Principal reductions would be a huge hit for banks.
The bottom line is that homeowners that are struggling should take action now. The news media reports national trends but real estate is local. States have different procedures for handling foreclosures and some states were never impacted as hard as other states. Illinois has a judicial foreclosure process so it takes longer. Other states don’t. In Illinois, banks have a right to pursue borrows for the loan deficiency remaining after foreclosure. Other states don’t. Some states are already recovering in this crisis. Others are not.
The first step is to contact your bank and see if you are able to refinance or modify your home loan. If you are past this point then you need an exit strategy. Contact a realtor to get an estimate of your home’s value. Get educated on the pros and cons of short sales vs. walking away from the mortgage (foreclosure). Decide what’s best for your personal situation.
If you are in the Chicago or south suburbs and want advice on your situation, please contact me. I would love to help.
For more information on the national mortgage settlement, visit http://nationalmortgagesettlement.com . This is the official website.
Millie C Lumpkin
Stages Real Estate
Phone: (312) 217-5644
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