Can Foreclosure Settlement Make Principal Reduction ‘Commonplace’?

Homeowners seeking foreclosure help or were already foreclosed on have been deluging the office of Maryland Attorney General Douglas Gansler with phone calls ever since learning of the $25 billion mortgage fraud settlement reached between five big banks and 49 state attorneys general. “The conference room didn’t have all those phones or computers three days ago,” Division of Consumer Protection Chief Bill Gruhn told WJZ-TV for a story on February 11, 2012. “And during that 24-hour period, about 500 people have called.”

As I have noted in previous blog posts this week, the initial amount of the settlement sounds significant enough to lead many homeowners and foreclosure victims to believe they could be receiving a check, but borrowers with loans owned by Freddie Mac or Fannie Mae are likely to be left empty-handed. However, the Hill reported on February 12, 2012, that the Obama administration and congressional Democrats have been “pressing Edward DeMarco, acting director of the independent Federal Housing Finance Agency (FHFA) that oversees Fannie and Freddie, to provide documents to support his opposition to reducing principal for homeowners who are underwater on their loans but current on their payments.”

The Hill reported that the Federal Reserve is also suggesting that the FHFA move forward with reducing principal. Iowa Attorney General Tom Miller told the Hill that the states’ settlement with the banks “will make widespread principal reduction throughout the country, commonplace.” Even if the pressure is enough to compel the FHFA to take action, it is important to remember that it remains unclear when homeowners will begin receiving financial aid or loan modifications as a result of the settlement. While there are incentives in place for the banks to distribute money or help homeowners stay in homes within the first year, the rollout of the settlement is expected to last three years.

Again, if you are facing foreclosure now and cannot wait to see when or if you will benefit as a result of this high-profile settlement, you should speak to a Maryland or Washington DC bankruptcy lawyer to determine whether filing for Chapter 7 or Chapter 13 bankruptcy would be in your best interest or not.

Law Firm of Kevin D. Judd – Washington DC bankruptcy attorney

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