What Does the Big Class Action Settlement Mean to Florida Borrowers?
By Charles P. Castellon, Esq.
The recent news of the massive class action settlement between 49 states (Oklahoma opted out to make its own deal) and five major lending institutions over the robo-signing and wide-scale fraud the banks committed has received much media attention. Many of our firm’s clients and others have reached out to us with questions, mainly along the lines of “what does this mean for me?” We have researched the issue and compiled some helpful links to articles below to help everyone understand what the settlement likely means.
In summary, this settlement, despite the great fanfare and promising sound bites, is likely to be a major disappointment for the vast majority of borrowers affected by the foreclosure crisis. Among the points highlighted in these articles is the compensation structure of the settlement. Borrowers who have already lost their homes through illegal and fraudulent foreclosure actions are supposed to receive $2,000 for their trouble. The rest of the $25 billion settlement is set aside for the banks to give upside down homeowners principal reduction loan modification deals.
The principal reduction part looks good on paper, but as the February 10 Bloomberg piece points out, there is approximately $7.6 billion earmarked for write-downs for Florida homeowners. Inconveniently, the sum total of negative equity in Florida homes state-wide is estimated to be $110 billion. It’s difficult to understand how that money will be spread around in a manner likely to make a great impact for many borrowers. Florida Attorney General Pam Bondi trumpeted the settlement as “a great day for the state and for the country,” and “much-needed relief for homeowners now and America needs relief now,” but a hard look at the numbers begs the question “how?”
Furthermore, there are serious logistical questions about the implementation and enforceability of the terms of this settlement. With respect to timing, it is reported that the state attorneys general are delegated the task of determining who is eligible for relief, a process estimated to take 6-9 months. Matt Taibi points out in the Rolling Stone blog piece that “about the only part of the deal we can be absolutely sure will be honored in full is the liability waiver for the robo-signing offenses.”
Further buzz-kill results from the reality that principal reductions and other loan modifications will be accessible to a small universe of borrowers because the deal doesn’t include loans owned or guaranteed by Fannie Mae (FNMA), Freddie Mac or Ginnie Mae, which pools and sells Federal Housing Administration loans. That’s a family-sized helping of the distressed mortgages in need of relief. The February 9 Bloomberg article notes “the five banks included in the settlement control or own 7.3 percent of all outstanding single-family mortgages, according to Inside Mortgage Finance.”
In summary, there are more questions than answers at this early stage of the settlement news. Based on the available facts, I have to believe this big news will be yet another disappointment for the many distressed borrowers hoping for real substantive relief from the foreclosure crisis.
Check out these links for more information:
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