Will $25 Million Mortgage Settlement Provide Justice for Homeowners?Countless homeowners in California lost their homes to foreclosure as a result of the subprime mortgage crisis and the collapse of the real estate market in 2008 and 2009. Many of these homeowners will now be compensated for the unfair—and, in some cases, illegal—lending and foreclosure practices of banks. Some of the nation’s largest lenders and the governments of 49 states recently reached the settlement, explains a California-based personal injury attorney.
The Mortgage Settlement
As a result of the wrongful actions of the banks, many of which arguably contributed to the mortgage crisis, negotiations began with lending institutions and the government to create a uniform way for the banks to make restitution to customers they had wronged. After months of negotiation, in February of 2012, five major banks (Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo) finally entered into a settlement with 49 of the 50 states.
Under the terms of the settlement, as much as $25 billion will be provided in direct payments to states and the federal government, as well as to borrowers who were injured by wrongful foreclosure practices.
The settlement will provide immediate assistance to borrowers who are current on their mortgages, allowing many to refinance mortgages if their homes are underwater. Borrowers who lost their homes to foreclosure will also be provided with immediate payments if they meet qualifying requirements, even without having to prove that they suffered financial harm. Those who lost their homes and who accept a payment from the mortgage settlement will not give up their right to file a private lawsuit by doing so; they may still take other legal action against their mortgage lender if they wish to.
The Fairness of the Settlement
While the settlement was agreed to by 49 of the 50 states, there were some significant concerns expressed by the attorney generals of several states including California, Massachusetts, New York, Delaware and Nevada.
One potential problem with the settlement is that, while the banks may have used wrongful practices, many of the foreclosures were legitimate. The people who experienced legitimate foreclosures are now being provided with cash bank from the banks, while others who do not happen to be covered by the settlement for whatever reason, will not receive this same benefit. In addition, the Oklahoma attorney general indicated that homeowners were being rewarded for defaulting on their mortgages by getting cash back, even as other families struggled to do the responsible thing and make payments. Oklahoma was the one holdout who did not agree to the settlement, and the other concern cited by the Oklahoma attorney general was that the way the settlement was structured could potentially cause people to decide that strategic default (defaulting on purpose) was the right choice.
These arguments are valid in many ways: homeowners should not be selectively rewarded for stopping their mortgage payments and many of the foreclosures were, in fact, legitimate. However, the fact remains that the banks were largely responsible for creating the mortgage mess in the first place and that many of the homeowners who are allegedly being "rewarded" for losing their homes did, in fact, lose their house and go through the traumatic process of foreclosure. If the banks did not require proof of income from loan recipients to ensure they would be able to make their payments or failed to educate them on the type of loans they were taking out, then the mortgage crisis can be, at least partially, attributed to them.
Further, and perhaps more important, the banks did not learn their lesson. In the wake of a crisis they created by their irresponsible practices, they proceeded only to engage in even more irresponsible practices. While this could be dealt with in private lawsuits, this would be time consuming and prohibitive for many families, not to mention expending even more resources in terms of court time and court costs, explains a California-based personal injury lawyer. The settlement helps to resolve many of the complaints of borrowers in one-fell swoop and it provides some measure of justice against corrupt financial institutions who sent the entire U.S. economy—and the property market in California and elsewhere—into a tailspin.
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