Mortgage deal brings relief, critics

Herald/Times Tallahassee BureauFebruary 10, 2012 

TALLAHASSEE -- A landmark mortgage settlement over the mishandling of millions of foreclosures nationwide could bring in billions of dollars in new housing aid for Florida homeowners, but critics of the long-awaited deal say the money isn’t nearly enough to help the millions of homeowners in hard-hit markets like South Florida.

“We’re looking at over 1 million [troubled] properties in Florida, and how many of them are going to be saved with these principal write-downs?” said Jack McCabe, CEO of McCabe Research and Consulting in Deerfield Beach, shortly after the national deal was announced Thursday. “I think that’s a precious few, maybe 20 percent.”

The $26 billion agreement was reached following 16 months of complex negotiations between 50 attorneys general and five major banks amid allegations of robo-signing and other abuses during the foreclosure crisis. Florida’s share: $8.4 billion, second only behind California.

Under terms of the settlement, Floridians who have lost their homes or have fallen underwater on their loans could receive a $2,000 check, a $20,000 mortgage reduction or a lower interest rate.

Attorney General Pam Bondi, who represented Florida at the negotiating table, said Florida’s share will go to three main groups of consumers, if their loans are serviced by Bank of America, JP Morgan Chase, Wells Fargo, Ally Financial or Citigroup.

First, people who lost their home to foreclosure between 2008 and 2011 could receive up to $2,000 if their loan servicer cut corners in the process. This will affect about 85,000 Floridians.

Next, people who have already fallen behind on their mortgage could see the size of their debt shrink through a principal reduction or a loan modification. Florida has earmarked $7.6 billion for that effort.

Finally, people who are current on their mortgage but owe more than what the home is worth, could refinance at a lower interest rate.

“This settlement will provide substantial relief to struggling Florida homeowners, and ensures that our state gets its fair share of the relief being provided nationally,” Bondi said in a statement.

Still, there are several hurdles homeowners have to clear before establishing eligibility. For example, loans owned by Fannie Mae and Freddie Mac are not included in the settlement. About half of the nation’s mortgages are backed by the two agencies.

Still, for those who qualify, the money could be a lifeline.

Consider Ray Payano of Cutler Bay, who has been locked in negotiations with CitiBank for months.

His family fell on hard times in 2010 when he and his wife were both laid off and struggled to keep up with their mortgage payments. Payano has since started an energy conservation firm and has seen his income increase, but he has struggled to work out a deal with his lender over past due amounts. The national settlement, which the Obama administration touted Thursday as part of the president’s efforts to fix housing, could help Payano modify his loan and catch up on payments.

“I’m not asking for a bailout. We went through a financial hardship and I’m just asking the bank to work with us,” he said, estimating that the house he bought for $160,000 three years ago is now worth less than $120,000.

Payano is one of hundreds of thousands of homeowners in South Florida with an underwater mortgage. While many have simply opted to stop paying and allow their homes to go into foreclosure, those who have remained current may get some help.

Homeowners wanting to take part in the settlement should contact their mortgage lenders.

There’s no doubt that the $8.4 billion settlement offers a much-needed jolt to Florida’s troubled housing market, yet the dollar amount is a fraction of the size of the state’s housing problem. With more than 1.9 million homes currently underwater, and the average homeowner under by $65,000, Florida’s negative equity total comes in at more than $123 billion.

The settlement includes $309 million for underwater homeowners to refinance their loans to a lower interest rate.

There are also more than 250,000 homes stuck in Florida’s foreclosure lengthy foreclosure process, more than any other state in the country. The settlement may shorten the state’s foreclosure timeline -- currently above two years -- as banks will no longer be held up by charges of robo-signing. Still, several of the homes in foreclosure are so far behind on payments that even if banks reduce the amount owed, the homeowner will not be able to catch up.

Principal write-downs for delinquent homeowners are a major part of the settlement and were a major sticking point in the negotiations, as banks -- and some attorneys general, including Bondi -- argued against them because they thought that the practice would encourage more homeowners to default.

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