While the recent historic $25 billion dollar mortgage refinancing settlement may be an accomplishment for politicians like Obama to tout in order to get reelected, as a homeowner who faces foreclosure, you need to make your own plan following these experts’ advice.
As implementation proceeds of the $25 billion mortgage servicing settlement agreed to by the federal government, 49 state governments and the 5 bigger mortgage servicing banks, there will be opportunities for homeowners to gain some relief and folks who were put out of their homes to get some ready cash. However, the real benefit of this legislation is mainly on the aggregate level, for the economy as a whole. Still, as a person facing financial meltdown, you need to be shrewd in order to negotiate or get out, for best outcome.
Gus Altuzarra, Managing Partner of Vertical Fund Group, a California-based investment firm focused on debt securities, believes the mortgage servicing settlement doesn’t really do much for the average guy. “Imagine that you were foreclosed on sometime up to December 31, 2011 and you get a check for $2,000 [the limitation applicable to homeowners who were already put out of their home]. This is not much in the way of anything substantial, it will not get their home back. If you are in distress right now with your loan, your principal balance is going to be cut maybe by 10%, assuming that you owe about $200,000 or less. This principal reduction is great for the homeowner except for the fact that on average, properties have dropped in value about 40% nationwide. This means that instead of being underwater 40%, maybe the new rate is 30%. I don’t really think it makes much difference because the average guy can’t get a new loan today. If the new payment is lowered, that will save the homeowner about 10% or $119 per month.”
That homeowner is only slightly more likely to be able to sell the home, in the depressed market of 2012.
Your best plan as a distressed homeowner is to follow these 3 guidelines
As a distressed homeowner, you should always have a strategy. The less time you have, the fewer choices you face. Here are three guidelines that you must abide by, according to Frank Rizzo, a real estate broker in NY, in order to make the best of your situation.
1. Be aggressive and take care of obligations. Be on the offensive, and know that a mortgage mess does not simply work itself out. Sometimes the best plan means cutting your losses, but in any case, have a plan and move on it.
2. If you find yourself in this situation without a good overall financial plan, get a grip on what all your obligations are. A comprehensive overview is crucial to identifying your best path.
3. Keep accurate records on your negotiations with the banks, including details of the conversations. Assume that they don’t have your paperwork and they don’t know your story, but take the emotion out of your response and act.
What is the expected timeframe of the $25 billion mortgage settlement?
The $25 billion mortgage settlement will be executed over the next three years. In the next 60-90 days, the settlement negotiators will solicit administrators. Then it could be 6-9 months for the attorneys general and settlement administrators and mortgage servicers to identify who is eligible to participate and receive cash payment and refinancing.
How will this affect the process of economic recovery?
According to Mike Freed, an attorney and managing partner of a national law firm, the $25 billion mortgage servicing settlement should contribute to an improvement overall in the national economy due to the greater efficiencies in the foreclosure process. “As a large amount of most difficult cases - those with apparent improprieties or due process concerns - are resolved either through settlement and restructuring or through litigation or foreclosure, there will be the opportunity to realize a fuller economic recovery.”
Quantifying The Good, the Bad and The Ugly In The Latest Mortgage Settlement
Most everyone concurs that clearing the courts of the backlog of foreclosures is a good thing. When the real estate market will more nearly match buyers and sellers, there will be a much greater chance of an overall economic recovery.
Image used under Creative Commons License. Source: Flickr
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