Understanding

the

National Mortgage Settlement Act

By: Scott Potter, Attorney at Law

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SCOTT L. POTTERForeclosures, Real Property Interests, Title Claims

How Did We End Up Here?

2007 – Housing Market Crash

2000 – Stock Market Crash: Dollars shift from stock market to housing.

Financial innovation = new lending types: interest only loans, zero down loans, interest adjustable loans. Banks quickly securitize then pass risk to someone else.

2003-2007: Subprime loans increase from 332 billion to 1.3 trillion

2006 – Housing Market Peak

2008 – Senate passes $700 billion bailout plan; fed announces will provide $900 billion in short-term loans to banks.

By 2008, 3 million foreclosures. AZ rate is 4%.Over 3 million foreclosures in 2009 alone.

Amid concerns from consumers about lost paperwork, missed deadline, and long delays, the state attorneys general launched an investigation in October 2010. The National Mortgage Settlement is a result of that investigation.

2013: number of foreclosures in AZ decreased by 56.2 %; the first time since housing market crash, our rate is out of the top four.

A History of Foreclosures in AZ

What is the National Mortgage Settlement Act?February 2012, federal government and 49 state attorneys general announce settlement.

Settlement will provide $25 billion in relief to distressed borrowers and direct payments to states and federal government.

Arizona will get over $1.3 billion.

Holds banks accountable for wrongdoings on mortgage servicing and robo-signing.

2nd largest consumer financial protection settlement in U.S. history.

The Banks

These 5 banks control an estimated 60% of the mortgage servicing market.

What About GSEs?Government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, are not eligible for parts of this settlement because of the position that the Federal Housing Finance Administrator has taken.

Homeowners with GSE-controlled mortgages will not directly benefit from this settlement but they will see benefits through stabilizing home values, new mortgage servicing standards, and reduced foreclosures.

Key Provisions of the Act

1. Homeowners needing immediate loan modifications

2. Borrowers whose mortgages exceed value of home

3. Borrowers who lost home to foreclosure

4. Nationwide reforms to bank servicing standards

5. Payments to signing states

6. Attorney General oversight

What Loans are Covered?The settlement focuses on principal reduction, aimed at forgiving portions of some loans to stabilize the housing market.

Some investor-owned loans are affected, depending on the existing agreements between the servicers and the investors.

Foreclosed Homeowners are eligible for payment if they meet the following criteria:• Loan foreclosed between1/1/08 & 12/31/11• Loan serviced by 1 of 5 mortgage servicers• Borrower made at least 3 payments on loan• Borrower lived in or intended to live in property

at time of loan origination• Property was 1-4 unit residential property• Unpaid principal balance of first-lien mortgage

did not exceed $729,750 for a 1 unit property; $934,200 for 2 unit; $1,129,250 for 3 unit; or $1,403,400 for 4 unit.

Homeowners Needing Immediate Loan Modifications

Home owners who need loan modifications.

1st & 2nd lien principal reduction.

Banks are required to work off $17 billion in principal reduction (among other forms of loan modification) across the country.

“Underwater” Borrowers

Borrowers whose mortgages exceed the value of their homes will be able to refinance at present interest rates, even if they are current on their payments.

Banks will be required to provide $3 billion in refinancing relief.

Borrowers Who Lost Home to Foreclosure

Borrowers who lost their homes between January 1, 2008 and December 31, 2011 will be eligible to receive payments if their loans were serviced by one of the 5 involved banks.

Banks will pay $1.5 billion to approximately 2 million eligible borrowers. The minimum payout is $840 (checks are expected to exceed this).

Claim FormBorrowers who lost their home to foreclosure between Jan. 1, 2008 and Dec. 31, 2011 and whose loans were serviced by one of the five participating mortgage servicers, have received a Notice Letter or Claim Form from the National Mortgage Settlement Administrator.

Claim forms were sent to eligible borrowers Sep 2012. Deadline to submit form has passed for foreclosure victims. Checks are expected to mail mid-summer of 2013.

Nationwide Reforms to Servicing Standards• See all loan documents to ensure legality of potential foreclosure• Opportunity to modify loans before foreclosure• More, well-trained staff & prompt responses• Single-point of contact

Payments to Signing States

Signing states will receive payments to help fund state foreclosure protection efforts and consumer protection.

What Happens if the Banks Don’t Comply?

Attorney General Oversight:

Banks will be required to report compliance to independent monitors, and will pay fines and suffer significant penalties for non-compliance.

Monitors will follow strict set of objective measuring standards and will oversee the carrying out of the settlement.

The Act Does Not:• Release private claims by individuals, class action claims, or

claims against Mortgage Electronic Registration Systems

• Release criminal liability or grant criminal immunity

• Include the state of Oklahoma

• End state attorneys general investigations of Wall Street related to financial fraud

• Address the banks failure to properly securitize loans; the state attorneys general have released claims on these matters to instead focus on obtaining release for homeowners, not hedge fund investors

Is it Working?Between March and December of 2012, over 550,000 homeowners received almost $46 billion in consumer relief, with roughly $82,000 in average benefits.

$300 billion allocated to housing counseling & legal aid for borrowers.

Banks have provided over $22.5 billion in principal reduction, lowering monthly payments on 266,000 loans.

Total consumer relief is expected to grow to over $50 billion.

How Will the Act Affect ATA Members?

Resources:

http://www.nationalmortgagesettlement.com/faq

http://www.huffingtonpost.com/shaun-donovan/mortgage-settlement-helpi_b_2837307.html

https://www.azag.gov/foreclosure/mortgage-settlements

http://www.stockpickssystem.com/housing-market-crash-2007/

https://www.azpm.org/p/top-news/2013/3/14/23141-az-foreclosure-rate-falls/

http://www.frbsf.org/community/issues/assets/preservation/resources/foreclosure/arizona_0409.pdf

http://www.foreclosureradar.com/arizona-foreclosures

spotter@jacksonwhitelaw.com

480-464-1111

www.jacksonwhitelaw.com