What does the “Robo-Signing” Mortgage Settlement Mean for PA?

Last month, Pennsylvania and 48 other states (Oklahoma is the hold-out) reached a $25 billion settlement with the nation’s five largest mortgage servicers—Ally/GMAC, Bank of America, Wells Fargo, Citi, J.P. Morgan Chase and Wells Fargo.

Known as the National Mortgage Settlement, this agreement was the result of lawsuits ignited by unfair lending practices exposed after the housing bubble burst.

A primary focus of the settlement included robo-signing, an illegal mortgage practice in which employees forged documents or signed document without having read them.  

Ultimately, this practice lead to the foreclosure of hundreds of thousands of homes as mortgage servicers who participated in robo-signing did not provide their borrowers with the option to refinance their mortgages.  

Of the $25 billion settlement, Pennsylvania is expected to receive an estimated $266 million. 

According to Attorney General Linda Kelly, the allocation of the settlement will be applied as follows: $93 million for loan modifications and direct relief, $21 million for cash payments to homeowners who suffered foreclosure due to fraudulent mortgage practices occurring between Jan. 1, 2008 ad Dec. 31, 2011, $81 Million to refinance loans for homeowners who are “underwater” on their mortgage and $69 million for payment to the Pennsylvania Office of the Attorney General (OAG) for reimbursement for investigations related to the settlement.

In addition to financial compensation, homeowners will now be protected by a new set of lending standards to be adopted by mortgage servicers and greater oversight of mortgage servicers by the OAG.   

Because of the complexity of the settlement, Kelly anticipates it will take several months before a process is implemented to administer settlement claims to eligible homeowners. So without knowing the details, it is not clear which existing homeowners’ assistance programs, if any, will benefit from this settlement, nor is it clear which agencies will administer the claims.

At this time, only certain homeowners will benefit from the Joint State-Federal Mortgage Settlement. 

Those affected include homeowners who financed through one of the five largest mortgage servicers noted above, and whose mortgages were foreclosed due to illegal lending practices between 2008 and 2011. 

Additionally, homeowners who are “underwater” on their mortgage may qualify for principal reduction or refinancing assistance under the terms of the settlement. 

Unfortunately, the settlement will not affect those whose loans are owned by Fannie Mae or Freddie Mac, and homeowners who have already lost their homes will not realize a significant benefit of this particular settlement. 

According to the attorney general, affected individuals will be contacted by either their mortgage servicers or the Office of the Attorney General.  Homeowners may also contact their mortgage servicer—the company to whom the monthly mortgage is paid—to inquire whether they will benefit from the settlement. Due to the complex nature of the settlement, the OAG will need months of preparing in order tomove forward with settlement distribution. 

Because litigation can take many years, the states opted to first settle with the largest mortgage servicers regarding certain aspects of illegal mortgage practices in an effort to provide timely relief to some homeowners. 

However, federal and state governments are aware that more should be done on behalf of the millions more homeowners facing, or suffering from, the mortgage crisis. It is important to note that the mortgage servicers included in this settlement, as well as other mortgage servicers and banks, are not immune to further prosecution from other misconducts that contributed to the housing crisis.

Personally, I think we should lock up the executives of the mortgage companies who defrauded honest homeowners and throw away the key, but that’s just me.

As the commonwealth moves forward with the settlement implementation process, homeowners are encouraged to visit the OAG’s the website for updates at www.attorneygeneral.gov. For more details regarding the Joint State-Federal Mortgage Servicing Settlement, homeowners can visit the settlement’s website at www.nationalmortgagesettlement.com.

And of course, feel free to contact at 724-746-3677 or 724-947-4422 or www.pahouse.com/white for more information on whether you may qualify for relief under the National Mortgage Settlement.