Citigroup to Pay Record $7 Billion After Federal Investigation

Citigroup and the Justice Department have agreed to a $7 billion deal that will settle a federal investigation into the mortgage securities the bank sold in the run-up to the financial crisis. http://ow.ly/3n8nff

Mortgage Modifications

A Mortgage Modification is permanent change in a homeowner’s home loan terms that makes the monthly loan payments affordable. The goal of mortgage modification is to prevent foreclosure.

Mortgage modification can benefit homeowners by preventing them from losing their home and can benefit lenders by avoiding the costly foreclosure process.

To apply for a mortgage modification, a homeowner must complete an application package documenting income, assets, expenses and financial hardship.

The biggest mortgage modification program in the United States is the Home Affordable Refinance Program, created in 2009 by the federal government in response to the nation's housing crisis. This program helps homeowners who are struggling to pay their Freddie Mac or Fannie Mae-backed mortgage apply for mortgage modification with their loan servicer.

These are borrowers who cannot do a traditional refinance to improve their loan terms because their home value has declined below the mortgage balance.

A similar program called the Home Affordable Modification Program helps borrowers with Federal Housing Administration-backed mortgages. Borrowers can also apply for a mortgage modification outside these federal programs. A nonprofit housing counselor can help with the process.

While a mortgage modification generally means less income for the bank because of a reduction in the mortgage’s principal amount, interest rate or both, this loss may be less than what the bank would experience by foreclosing on the borrower and reselling the property. Mortgage modification can turn a less-than-ideal situation into a win-win.

Still, foreclosure was much more common than mortgage modification during the housing crisis because banks claimed they lacked the resources to handle the large number of modification requests. As a result many homeowners who may have qualified for mortgage modifications were not able to get into a modification program and, instead, lost their homes to foreclosure.

Understanding Short Sales

Short sales are purchases negotiated with the owner and lender(s) before foreclosure. Typically the purchase price negotiated is less than the balance owed on the property.  For investors, short sales present an opportunity to buy real estate below market value and help borrowers avoid foreclosure.

Short Sale Process

• Both parties consent to the short sale process, which allows them to avoid foreclosure, which involves more fees for the bank and foreclosure being reported on the borrowers credit report. However, this agreement does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency.
• The bank or mortgage lender agrees to discount the loan balance because of an economic or financial hardship on the part of the borrower.
• The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender.

Short Sale vs Foreclosure

• Neither side is "doing the other a favor;" a short sale is simply the most economical solution to a problem.
• Banks will incur a smaller financial loss than would result from foreclosure or continued non-payment.
• Borrowers are able to limit damage to their credit history, and partially control the debt.
• A short sale is typically faster and less expensive than a foreclosure.
• It does not extinguish the remaining deficiency balance unless settlement is clearly indicated on the acceptance of offer.

For more information about short sales visit Carlisle Mitchell - Real Estate Tips for Investors

Payments coming for borrowers in $3.6B foreclosure settlement

Starting Friday, cash payments ranging from $300 to $125,000 will be sent to 4.2 million borrowers as part of a $3.6 billion settlement over foreclosure abuses reached between the government and 13 mortgage servicers, according to the Office of the Comptroller of the Currency and the Federal Reserve.

Borrowers will receive payments based on the level of damage caused. The largest checks, for $125,000, will go to 1,082 military service members whose homes were repossessed while they were on active duty, a violation of the Servicemembers Civil Relief Act, and to 53 borrowers who were current on their payments but were foreclosed on anyway.

Most borrowers, however, suffered other types of financial damage. In some cases, servicers charged them unfair fees or failed to modify their mortgage to more affordable terms.

The servicers participating in the agreement include Aurora, Bank of America, Chase, Citibank, Goldman Sachs, HSBC, MetLife Bank, Morgan Stanley, PNC Mortgage, Sovereign Bank, SunTrust, U.S. Bank and Wells Fargo. 

Payments from all of the servicers except Goldman Sachs and Morgan Stanley will go out starting this week and be completed by July. Details on when Goldman and Morgan Stanley will start issuing checks will be announced later.

When the deal was first announced in February, 2012, the servicers had agreed to hire independent consultants to conduct foreclosure reviews for each borrower that might have been impacted by the robo-signing scandal. The independent reviews, however, proved too costly, said Bryan Hubbard, a spokesman for the OCC. "They tried to do it case-by-case but that was slow and very expensive," said Hubbard.

In addition, only a fraction of borrowers stepped forward to apply for a review. Out of the nearly 4 million borrowers who will be receiving payments in the upcoming weeks, only about 439,000 had asked for a review.

To expedite the process, a revised settlement was reached in January that was open to all borrowers in default in 2009 and 2010, even those who ended up suffering no harm at all, according to Hubbard.

Borrowers who requested independent foreclosure reviews will get double the compensation in many cases. For example, a borrower who sought out a review of a mortgage modification request that was denied in 2009 or 2010 will get $6,000 back from their servicer, while someone who didn't ask for a review but received a similar denial will get $3,000.

A borrower who was supposed to be protected by bankruptcy laws but lost their home anyway, will receive $62,500 if they had requested a review and half that amount if they did not.

Compensation of $50,000 will go to former homeowners whose servicers failed to permanently modify their mortgages even though they had successfully completed a trial modification and then later asked for a foreclosure review.

Borrowers who accept a settlement check will not forfeit their right to pursue other legal claims against their servicer. They will not have to sign any waivers against further action.

The settlement does not cover loans serviced by OneWest, Everbank and Ally Financial, the former GMAC Mortgage. Talks with those companies are continuing.