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Federal foreclosure abuse settlement offers relief for some borrowers

3/14/2012 | Real Estate Blog

Our Philadelphia readers have likely heard by now about the recent settlement agreement between the U.S. Department of Justice, the U.S. Department of Housing and Urban Development, and state governments over alleged foreclosure abuse. The agreement, which was reached last month, is still in the process of receiving approval. If it is approved, certain homeowners may be able to receive compensation, reduction in their principal, or refinancing of their loans.

The state of Pennsylvania was among the states that agreed to the settlement, which involved five of the nation’s largest mortgage services, including Bank of America., Wells Faro, and JPMorgan Chase.

As our readers have heard, the suit alleged that the banks engaged in misconduct resulting in issuing of improper mortgages, premature unauthorized foreclosures, violation of service members’ and other homeowners’ rights, false and deceptive affidavits and other documents, and waste and abuse of taxpayer dollars.

Most of the settlement money, around $20 billion, is set to go to home refinancing and principal reductions for borrowers struggling to keep afloat. Roughly 1 million borrowers are expected to have their mortgage debt reduced or their homes refinanced at lower rates as a result of the federal money. The rest of the settlement money, roughly $5 billion, is to be dispersed by state governments to those who lost their homes to improper foreclosures between 2008 and 2011.

Among the five banks, Wells Fargo will be providing the largest deposit share of the Philadelphia banking market.

The agreement also reportedly sets up new rules for banks that will prevent foreclosure of homeowners being considered for loan modifications, set up an appeals procedure, and ensure adequate staffing to handle consumer inquiries.

Source: Philadelphia Business Journal, “Mortgage settlement: New details as $25B deal is filed,” Jeff Blumenthal, March 13, 2012.