Four bedrooms, three baths, the white picket fence -- the American Dream.
It all went south in 2008 for millions of families when the housing bubble burst and interest rates soared and all those adjustable rate mortgages adjusted themselves to unaffordability. Securities based on those mortgages turned worthless practically overnight triggering the worst recession since the Great Depression and the world is still struggling to recover.
Federal and state officials announced agreement last week with the five biggest mortgage servicers -- Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. (formerly GMAC) -- that President Obama called a good first step toward fixing the system.
"Many companies that handled … foreclosures didn't give people a fighting chance to hold onto their homes," Obama said in announcing the settlement.
"In many cases, they didn't even verify that these foreclosures were actually legitimate. Some of the people they hired to process foreclosures used fake signatures to -- on fake documents to speed up the foreclosure process. Some of them didn't read what they were signing at all. …
"Under the terms of this settlement, America's biggest banks -- banks that were rescued by taxpayer dollars -- will be required to right these wrongs. That means more than just paying a fee. These banks will put billions of dollars towards relief for families across the nation. They'll provide refinancing for borrowers that are stuck in high interest rate mortgages. They'll reduce loans for families who owe more on their homes than they're worth. And they will deliver some measure of justice for families that have already been victims of abusive practices. …
"Now, I want to be clear. No compensation, no amount of money, no measure of justice is enough to make it right for a family who's had their piece of the American Dream wrongly taken from them. And no action, no matter how meaningful, is going to, by itself, entirely heal the housing market. But this settlement is a start."
It won't do much for the millions of people who lost their homes due to faulty documents pumped out by mortgage mills. Those homeowners will get $1.5 billion -- $1,500 to $2,000 each -- in damages from the $25 billion settlement. A much larger chunk, $5 billion, goes to the 49 states -- Oklahoma opted out -- participating in the deal.
Those who are in foreclosure but have yet to be kicked out of their homes or are on the verge of defaulting fare much better. Some $10 billion has been set aside for reducing principles and refinancing to lower interest rates and $7 billion will go toward other forms of relief, including forbearance of principal for unemployed borrowers, anti-blight programs, short sales and transitional assistance, benefits for service members forced to sell their homes at a loss as a result of a Permanent Change in Station order, and other programs.
So far so good but what does that mean for the housing industry and prospects for people trying to sell their homes and homeowners who saw what they consider their nest egg for retirement shrink by 40 percent or more in some areas?
Duncan R.MacKenzie, chief executive officer of the New York State Association of Realtors, said the settlement is welcome but it will take a lot more to bring confidence in the market.
"There are more fundamental issues that need to be addressed in Washington if New York state and the nation are to return to normalcy," he said in an e-mail response to queries from UPI. "For example, Congress must maintain its commitment to the mortgage interest deduction and it cannot use FHA [Federal Housing Authority] and the GSEs [government sponsored enterprises], and ultimately homebuyers, to pay for future extensions of the payroll tax cut."
Eric D. Berman, communications director for the Massachusetts Association of Realtors, said his group is hoping the settlement "gives lenders the confidence they need to start again with loan modifications, short sales and foreclosures, which will help support the housing market recovery."
The agreement will not solve the foreclosure crisis, but "should help to clear the cloud of uncertainty that's been hanging over the foreclosure process over the past 16 months, allowing lenders and servicers to more confidently move forward with delayed foreclosures when they have the proper documentation to do so as specified in the settlement," said Daren Blomquist, vice president of RealtyTrac, which tracks foreclosures online.
"The finalized settlement should also prompt lenders and servicers to more aggressively pursue alternatives to foreclosure -- such as loan modifications, short sales and deeds in lieu of foreclosure -- in situations where the documentation necessary to foreclose is lacking.
"All of this will result in more foreclosure pain in the short term as some of the foreclosures that should have happened last year instead happen this year -- which will likely result in higher foreclosure numbers in 2012 than 2011. We estimate there will be 1 million completed foreclosures … in 2012, a 25 percent increase from 2011. But in the longer term a finalized settlement will help to more quickly clear the so-called shadow inventory, which will in turn help the housing market finally bottom out once and for all -- provided that more roadblocks are not put up that stall the foreclosure process further.
"The settlement also removes some of the risk of future foreclosures with the principal mortgage write downs. Still, it appears that the principal write-downs will go to only a fraction of the 12.5 million borrowers nationwide whom we estimate are seriously underwater."
Walt Molony of the National Association of Realtors noted foreclosure sales have been trending down steadily. In the fourth quarter, they accounted for 18 percent of sales, although in some communities the percentage was much higher. The number of homes for sale in the quarter was 2.38 million, 21.2 percent lower than the fourth quarter of 2010 when 3.02 million were on the market.
"The good news is they're [foreclosed homes] selling quickly, especially in the lower price ranges, and they've been entering the pipeline at a relatively steady pace. Other analysis indicated we're already past the peak," Molony said.