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February 11th, 2012
09:00 AM ET

Do you qualify for the mortgage settlement?

Attorney General Eric Holder stood before the cameras this week and announced a long-negotiated and hard-fought settlement with the biggest mortgage servicers. He said their behavior had been “disturbing” and from here on out, there would be a new national standard for how mortgage servicers must behave when a borrower falls behind. Imagine, one number to call and one point of contact for struggling homeowners dealing with the bank. And for banks, there will finally be accountability for how they process delinquencies.

The numbers are big - $26 billion. The servicers are household names - Wells Fargo, Citigroup, Bank of America, JP Morgan and Ally Financial. Together they handle more than half of all home loans.

So how do you know if your underwater loan is covered under this settlement?

First, here are the groups targeted by the plan:

  1.  Underwater homeowners who are behind in payments. They will see an average $20,000 in principal write-downs.
  2.  Underwater homeowners who are current on their payments. They will be able to refinance at lower rates.
  3.  Homeowners who lost their homes to foreclosure between Sept. 2008 and Dec. 2011 could receive between $1,500 to $2,000 payments.

The settlement is for one million homeowners initially. Keep in mind there are 11 million underwater loans in this country, and this settlement handles only non-Fannie Mae and Freddie Mac owned home loans.

Think you might qualify?

  1. The first stop is the nascent website for the settlement. It includes the phone numbers of the bank’s outreach for their customers.
  2. Call your servicer immediately. Chances are there is little they are doing today or this week to move your case forward, but they are under strict timelines to resolve this matter quickly. According to Housing Secretary Shaun Donovan, if they don’t, they will be fined. Instead of the voluntary compliance the banks have had with previous housing rescue plans, this is a settlement includes enforcement mechanisms, he says. From here on out, the banks are legally obligated to give you a fair shake, to answer your calls, and to give you one point of contact for resolving your issues. No more robo-signing. No more ping-pong phone calls to different departments.
  3. Keep records of everything. Detailed, meticulous, exhaustive notes of every call, email, bill and contact you have with the bank.
  4.  Many of you are asking me if you should stop paying your mortgage to qualify for the bigger principal write-downs for people who are behind on their payments. If you are thinking about this you need to consult a HUD-authorized housing counselor. Strategically defaulting is a pretty risky maneuver since your eligibility for this settlement is determined on the day the settlement is accepted by a federal judge. Mess up the timing and you could make it worse for yourself.

Of course not everyone is happy. Some on the left say the banks didn't pay out enough – and note only $5 billion is immediately coming out of bank coffers. On the right, some decry what they see is Obama Administration overreach. They want the housing market to bottom out on its own. And of course a $1,500 check comes too late for many families who are long gone from their home, and millions of underwater homeowners will never qualify.

Then there is the issue of trusting the servicers to do business differently from here on out. And judging from the state attorneys general and the homeowners who reach out to us, the servicers have a long way to go to convince the public they can handle the foreclosure mess in an organized and compassionate way.

We’ll be watching.

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