After four agonizing years of crisis in the nation’s housing market, we’re finally seeing positive news. As of November, the nation’s five largest mortgage servicers have distributed $26.1 billion in relief to over 300,000 homeowners in danger of foreclosure, actions taken as a result of a national settlement over improper loan servicing practices.
This assistance will prove critical for many communities, like Prince George’s County, Maryland, a Washington, D.C., inner-ring suburb, where one in six homes entered the foreclosure process between January 2011 and June 2012.
The national mortgage settlement was the result of a lawsuit between 49 states’ attorneys general and the nation’s five largest servicers: Bank of America, Wells Fargo, JPMorgan Chase, Ally/GMAC and Citi. According to a report by the monitor of the settlement, the majority of the funds distributed so far have gone to direct debt relief, a substantial portion of which is principal reduction that lowers the total amount the borrower owes and, as a result, monthly payments. This is “significant progress on the broadest and most robust principal reduction program in the nation’s history,” according to the monitor’s summary of the report.
Interactive Map of Settlement's Consumer Relief by State
On average, the 22,000 households that received debt relief saw their principal fall by $116,000. Further, for 37,000 loans, refinancing lowered interest rates by an average of 2.34 percentage points, saving $400 in monthly payments. According to new Urban Institute NeighborhoodInfo DC research, the median Prince George’s borrower receiving a Notice of Intent to Foreclose from Bank of America owed $9,300 in late payments, penalties, and fees after 5 months of delinquency. With sharp debt relief and reductions in monthly payments, some of these homeowners likely could have avoided delinquency.
In 2013, the settlement will require several key checks with the five servicers to ensure they are complying with the settlement’s requirements, including ensuring that 60 percent of all funds go toward debt relief. The funds will also provide significant support for housing counseling services and legal aid for homeowners.
NeighborhoodInfo DC will continue to monitor developments in Prince George’s County to see if the situation improves.