In an effort to provide relief during the mortgage crisis that has affected so many Florida residents, state and federal officials arrived at an historic $26 billion settlement with five major mortgage servicers. Bank of America, Wells Fargo, JP Morgan Chase, Ally Financial and Citigroup have all signed on to provide $17 billion in mortgage relief to roughly one million borrowers throughout the nation. The federal government is set to handle $1 billion in relief, while $3 billion will be used to refinance loans for lower interest rates.
It is expected that the settlement will increase to $30 billion if nine other mortgage servicers agree to sign on.
The deal is welcome news for many Florida residents who are struggling with mortgage payments, but a lot of people will surely say that the agreement doesn't go far enough. In any case, the deal signals the most concerted effort so far by mortgage servicers to write down the amount owed by homeowners who have underwater mortgages.
Officials indicated that at least 60 percent of the $17 billion in mortgage relief will result from writing down loan principal, which may help more people in Florida and elsewhere avoid defaulting on mortgage payments.
The settlement is expected to offer more than the initial dollar amount of relief, as servicers will receive credits for writing down underwater mortgages. As a result, the $26 billion could turn into $40 billion in debt relief.
The average principal write-down nationwide is estimated to be about $20,000, though in some cases the write-downs will be considerably larger. In order to be eligible to have a loan principal reduced, borrowers must be delinquent on their mortgage payments.
While the recent settlement is welcome news for many Broward County residents who are on the brink of foreclosure, the deal may fail to provide much needed relief for the majority of homeowners who have struggled to successfully make payments even while their home values plummeted. Floridians who are seeking a temporary or permanent loan modification will still want to explore the various legal ways of achieving that end.
Source: USA Today, "Feds, states, banks agree to $26 billion mortgage settlement," Julie Schmit, Feb. 9, 2012