What the foreclosure settlement does!

The $26 billion foreclosure settlement has finally been given the
green light, making it possible for roughly two million of the
nation's hardest hit borrowers to see a significant reduction in
their mortgage payments.  Agreed to between the nation's five
largest banks and attorneys general from 49 states and the
District of Columbia, the deal settles charges of foreclosure
processing abuses dating back to 2008.  The settlement, the
details of which were first announced in early February, has been
in the works for more than a year. Here's what the banks agreed
to and what borrowers can expect in the days ahead.
The banks and servicers have committed at least $17 billion to
reduce principal for borrowers who 1) owe far more than their
homes are worth 2) are behind on payments.  The amount of
principal reduction will average about $20,000 per borrower in
the cases of four of the banks. The Bank of America reductions
will be even steeper, averaging $100,000 or more, according to
spokesman Rick Simon.  Another $3.7 billion will go toward
refinancing mortgages for borrowers who are current on their
payments. This will enable them to take advantage of the
historically low interest rates that are currently available.
The banks will pay $5 billion to the states and the federal
government, the only hard money involved in the deal. Out of that
fund will come payments of $1,500 to $2,000 to homeowners who
lost their homes to foreclosure?
Other funds will be paid to legal aid and homeowner advocacy
organizations to help individuals facing foreclosure or
experiencing servicer abuses.  Another $1 billion will be paid
directly by Bank of America to the Federal Housing Administration
to settle charges that its subsidiary, Countrywide Financial,
defrauded the housing agency.  In addition, the banks agreed to
eliminate robo-signing altogether and to use proper and legal
procedures when putting homeowners through the foreclosure
process. They also agreed to end servicer abuses, like harassing
delinquent borrowers for payments, and to include principal
reductions more often in their mortgage modifications programs.
FHA delays collections rule
The Federal Housing Administration (FHA) rescinded and will delay
a rule that as of April 1 prohibited borrowers with more than
$1,000 in disputed collections accounts from getting a federally
backed mortgage, according to a notice sent late Friday.  FHA
postponed the rule until July, and will take public comment from
lenders, builders and others in the industry until then to
clarify guidance.  "There is clearly a bigger ripple effect here
than the Department of Housing and Urban Development might have
anticipated going into this revision," said Lisa Jackson, senior
vice president of research and business development with John
Burns Real Estate Consulting. "Any measure that impacts even 10%
of sales is meaningful and our analysis shows it would be far
greater in some markets."  The FHA attempted to ease the original
proposal, allowing borrowers to provide written documentation on
"life event" disputed accounts with them, such as bills stemming
from illness, divorce or unemployment in order to obtain an
exemption.  Borrowers could previously show the lender they
arranged a payment plan to settle other accounts too in order to
qualify, including credit card and utility bills.  According to
the alert sent Friday, the FHA ensured lenders they would not be
in violation of the new rule for loans written between April 1
and April 8.  Until July, the old guidance will be put back into
place.

Analysts from JPMorgan Chase said the rule would affect many
first-time homebuyers the most, those most likely to carry such
debt. The analysts estimated the rule could cut FHA demand by up
to 20%, and the damage would affect homebuilders differently
depending upon how much of their business hinged on these
borrowers.  Many questioned the timing and the murkiness of the
rule. The FHA previously said it adopted the rule in order to
reduce default risk for newer books of business. Mortgages
written during the housing bubble continue to haunt the agency.
The FHA emergency Mutual Mortgage Insurance fund dropped to
nearly 0.2% last year was in danger of needing a bailout from the
Treasury Department if insurance premiums were not hiked and some
lucrative settlements were not struck.  "There are two positives
to this latest decision: HUD is willing to analyze the real
implications of the housing market before they put a new measure
in place, plus they are engaging feedback on the issue," Jackson
said.
63% of HAMP-eligible second liens modified
Mortgage servicers started modifications on 63% of eligible
second liens under the Home Affordable Modification Program
(HAMP), according to Treasury Department data released Friday.
Through February, servicers participating in 2MP started 71,133
second-lien workouts of the 113,774 eligible loans. More than
15,600 of them have been fully extinguished. More than one-third
of the second-lien modifications occurred in California, according to the
Treasury.  Of the $29.9 billion allocated for HAMP, roughly $2.7
billion is set aside for modifying second liens, according to the
Special Inspector General for the Troubled Asset Relief Program.
In January, the Treasury boosted incentives to investors who
allow the workouts, doubling the pay from earlier in the program.
 In order for a loan to be eligible for the second-lien program
under HAMP, the servicer must receive notification of a match
with a permanent first lien modification, according to program
guidelines. The Treasury said roughly 315,000 HAMP first-lien
modifications have been matched to a second, but many are deemed
ineligible because of a re-default on the first lien, an
extinguishment before it entered HAMP.  In some cases, the
Treasury said some homeowners with an eligible second decline to
participate in 2MP.  Bank of America has nearly 40,000 eligible
second-liens, the most of any servicer, and has started
modifications on 62% of them.  Wells Fargo started workouts on
71% of its 16,300 eligible seconds, the highest percentage of any
servicer.  Overall, servicers start modifications on between
2,000 and 5,000 second-liens under 2MP. The median monthly
payment reduction was $161 for borrowers.  Servicers started 1.8
million trial modifications and completed 974,000 permanent workouts under the first-lien program!

Dan Humphrey

I will see you at the top!