Health & Fitness
$25B Robo-Settlement, Explained
Perspective on the recent $25 billion robo-signing settlement between the five largest banks and the state Attorneys General.
California Attorney General Kamala Harris announced Wednesday that the state of California will receive approximately $12 billion of the estimated $25 billion settlement recently negotiated between the nations five largest banks and the combined 50 states Attorneys General.
Although the dollar amount seems impressive, it will be some time before we can sort out the realbenefit of this historic event. To put it in perspective, US homeowners are estimated to have $750 billionin negative equity according to Stan Humphries, chief economist at Zillow.
There is something else very important to understand. Most of the $25 billion settlement is not being paid out to borrowers. The banks are agreeing not to collect a portion of each loan affected. They already knew they were not going to collect most of this money.
Find out what's happening in Watsonvillewith free, real-time updates from Patch.
Even so, this settlement may have a significant positive effect. The devil is in the detail. These are the factors that bear watching over the next few months as elements of the new programs are revealed.
Will there be a wave of foreclosure filings as lenders now have the uncertainty of the Attorneys General lawsuit behind them? Daren Blomquist of Realty Trac is predicting a 25 percent increase in 2012 over the 804,000 foreclosures nationally in 2011.
Find out what's happening in Watsonvillewith free, real-time updates from Patch.
Will there be a significant increase in loans modifications that reduce the amount owed on the loan rather than just reduce the monthly payment? The latest statistics from the U.S. Comptroller of the Currency indicate only 7.8 percent of loan modifications reduce the amount owed.
Even though the amount of principal reductions spurred by this settlement may be small relative to the vast void of negative equity, it will be closely watched. If it can be shown that borrowers receiving principal reductions are less likely to
re-default on their mortgage loans, it will add incentive for more principal
reductions in the future.
References
http://www.savigroup.com/foreclosures-to-climb-in-u-s-before-bank-deal-helps-housing-market-heal/
