Perhaps the biggest winners in the $25 billion mortgage fraud settlement would be the five big banks that were signatories to the deal. Bank of America, Citibank, Wells Fargo & Co., JPMorgan Chase and Ally Financial handle payments on more than half the nation’s outstanding 27 million home loans, but as Michael Hiltzik wrote in the Los Angeles Times on February 11, 2012, “The only cold cash the banks are paying is a combined $5 billion.” While that includes $1.5 billion to compensate borrowers whose homes were foreclosed on from 2008 through the end of last year, Hiltzik noted the rest would go to the federal and state governments to pay for regulatory programs.
In other words, only 20 percent of that $25 billion settlement is actual bank money—an amount that basically matches what Fannie Mae and Freddie Mac putbacks have been running at each quarter. As business consultant Susan Webber wrote on her financial blog, “Naked Capitalism,” under her pen name Yves Smith, the remaining $20 billion is your money. “The mortgage principal writedowns are guaranteed to come almost entirely from securitized loans, which means from investors, which in turn means taxpayers via Fannie and Freddie, pension funds, insurers, and 401 (k)s,” Webber wrote.
As Hiltzik wrote, less than half of the 2 million owners who lost their homes to foreclosure will receive payments of $2,000 each, and only about 2 million of the 11 million homeowners who are underwater by roughly $700 billion combined, or an average of $65,000 each, are projected to get about $20,000 each. As I noted on Monday, homeowners with loans owned by Fannie and Freddie—which own or control the majority of all outstanding mortgages—will not be eligible for this relief.
That is quite a significant number of homeowners in need of foreclosure help who may not getting much, if any help at all. While you might be tempted to believe that $25 billion would translate to the proverbial rising tide that lifts all boats, you do not want to find yourself waiting for a tide that could still take years to rise—and possibly not until your boat has already sunk. If you are unsure about your eligibility and are considering filing Chapter 7 or Chapter 13 bankruptcy, you should speak to a Washington DC or Maryland bankruptcy attorney to make sure you get all the help you are entitled to.