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$25 billion agreement to help settle score for mortgage service abuses

Dave DeWitte, CR Gazette –

What it means:

-Qualifying Iowans who were foreclosed by their lender from Jan. 1, 2008, through Dec. 31, 2011, will get a share of a $7.4 million payment pool, estimated to average about $1,500 per recipient.

— Eligible homeowners will receive an estimated $5.9 million in benefits from loan term changes.

— Iowans who owe more on their mortgaged home than its market value, called underwater borrowers, will receive an estimated $11.6 million in benefits.

— A $15.3 million payment to the State of Iowa will help cover “infrastructure” costs of assisting borrowers, such as support for Iowa Legal Aid and the Iowa Mortgage Assistance Hotline.

– Homeowners should turn for more assistance to the Iowa Mortgage Help Hotline, 877-622-4866, by contacting their lender, or by contacting the Iowa Attorney General’s Office.


The litigation over mortgage servicing abuse is far from over, but Iowans could see about $25 million in direct aid from the first interstate settlement with the five largest mortgage servicers.

Iowans who lost homes to foreclosure between Jan. 1, 2008 and Dec. 31, 2011, could be eligible for payments expected to average $1,500, and “underwater borrowers” whose loans exceed their home’s worth may be eligible for principal reductions that lower monthly payments. New protections from loan servicing abuse will take effect.

The settlement with Bank of America, Wells Fargo, Citi, Chase and Ally was announced on Thursday, Feb. 9, by federal officials and state attorneys general who had been investigating the improper servicing and foreclosure practices.

The lenders will pay a $25 billion penalty to be divided among the participating states.

The settlement was the fruit of a 49-state and federal coalition that began rolling after the allegations of “robosigning” in foreclosure documents in September 2010, explained Patrick Madigan, lead Iowa assistant attorney general in the matter.

Iowa Attorney General Tom Miller, who helped lead negotiations, said “a huge number of Iowans will benefit from this.” He was especially pleased that the servicers agreed to reductions in principal, or the borrowed amount, after earlier rejecting the notion.

A direct payment of $15.3 million from the settlement will go to the State of Iowa. Miller said the funds will be used primarily to support the Iowa Mortgage Help Hotline and Legal Aid, which provide direct services to affected homeowners.

The head of the federal government’s new Consumer Financial Protection Bureau, Richard Corday, said the agency will rigorously enforce new mortgage servicer standards of conduct established in the settlement.

The settlement was condemned as inadequate by Iowa Citizens for Community Improvement, a group advocating for homeowners. Underwater mortgages nationwide total nearly $700 billion, the group said.

“Compared to the housing crisis we’re in right now, this is a drop in the bucket,” said Hugh Espey, the group’s executive director, in a statement. He said Miller promised fundamental transformation of the mortgage industry in meetings held over a year ago, “but it looks like he just struck out.”

Miller said the agreement covers only about 60 percent of mortgages serviced, and the coalition will next seek a similar settlement with the next nine largest mortgage servicers.

Miller said principal reduction in specific instances will keep many borrowers in their homes. Principal is the original borrowed amount on a mortgage that is incrementally paid off with interest and fees.

“People will see that this works, it’ll result in lower re-default rates, and I think it’ll be a catalyst for more,” Miller said.

The enforcement action involved the United States Department of Justice and United States Department of Housing and Urban Development. It targets the roughly 20 percent of the U.S. mortgage market called the Held for Investment market.

The implementation of the agreement will begin later this month when it is filed in federal court. Implementation will span a three-year period due to the complexity of the mortgage market and the agreement.

Borrowers may be contacted by one of the five mortgage services directly about loan modification offers. They may also be contacted by a settlement administrator or their state attorney general, or may need to contact their mortgage servicer to obtain more information about specific programs and whether their loan qualifies.

Miller and Mike Heid, Wells Fargo Home Mortgage president, were advised Iowans with questions to call the Iowa Mortgage Help Hotline.

The large Iowa-based mortgage servicer in the settlement, Wells Fargo Home Mortgage, said it has committed to pay $5.3 billion. Company President Mike Heid was the main representative for the loan servicers in negotiations, according to Miller. He called the settlement an important step toward restoring confidence in mortgage servicing and stability in the housing market.

AFL-CIO President Rich Trumka praised the government’s negotiators for not releasing the banks from liability for illegal conduct. He called on the government to press ahead with investigating and prosecuting criminal activities against banks and broader civil claims for illegal conduct that led to the mortgage meltdown.

The number of houses currently in foreclosure in Linn County in December 2011 was listed at 93 by the online service RealtyTrac. In Johnson County, the number was placed at 29.

Miller said Iowa’s share of the overall settlement was relatively small by virtue of the smaller proportion of Iowans caught up in mortgage servicing abuses.

“We wouldn’t trade a lot bigger payment for a lot bigger problem,” he said.

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