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Tuesday, February 14, 2012

No magic cure in mortgage deal

Telegraph Editorial

The news last week that the federal government and 49 state attorneys general had reached a $25 billion settlement with the nation’s five biggest mortgage lenders over abusive mortgage and foreclosure practices certainly is good news for many American homeowners.

And New Hampshire’s $43.6 million slice of what is being touted as the largest federal-state civil settlement ever should provide some relief to the thousands of Granite State homeowners who fell prey to some of these deceptive practices, including the “robo-signing” of thousands of foreclosure documents without proper review.

But anyone who believes this agreement is going to make all the injured parties whole or spark a rapid turnaround in the nation’s housing market is going to be extremely disappointed.

To put the $25 billion into some context, it is estimated that millions of homeowners collectively owe $700 billion more on their properties than they are worth today, or about $50,000 per home. The average benefit under the settlement for about 1 million qualifying homeowners – either through principal reduction or refinancing – is only expected to average about $20,000, less than half of that amount.

In fact, some critics have gone so far as to suggest the real winners in this deal aren’t the beleaguered home owners, but rather politicians and the five offending banks: Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc., formerly GMAC.

In New Hampshire, here’s where the state’s $43.6 million share is expected to go:

• $19.4 million in benefits to borrowers from either changes in their loan term or other direct relief.

• $4.5 million in payments to those who lost their homes to foreclosure between Jan. 1, 2008, and Dec. 31, 2011, after falling victim to servicing abuse by one of the five lenders.

• $9.5 million in value for refinanced loans to borrowers whose homes are underwater.

• And $11 million in direct payment to the state.

The major beneficiaries of principal reductions are expected to be those borrowers who are late on their mortgages or at risk of default; owe more than their home is worth, and did business with one of the lenders covered in the settlement. The Federal Reserve recently estimated that fewer than one in four borrowers with underwater mortgages is behind on payments.

Conversely, borrowers current on their payments or with loans guaranteed by a federal entity – Fannie Mae, Freddie Mac or the Federal Housing Administration, for example – would not qualify for a reduction in principal.

When will help be available?

If you do qualify for assistance, don’t hold your breath. Lenders have up to three years to provide the required relief – though three-quarters of their obligations must be met within the first two years – or else they could be subject to additional penalties.

Now, we don’t mean to suggest that nothing good will come out of this deal.

Some homeowners will be helped financially. New serving standards will be implemented to provide all consumers with greater mortgage and foreclosure protections. And the stalemate could begin to ease among lenders, borrowers and potential home buyers.

In the big scheme of things, however, the settlement will only go so far in fixing what ails the nation’s sluggish housing market.