The 2008 housing crisis wiped out hundreds of thousands of homeowners. The economy tanked, leaving many unable to pay their bills. The housing market imploded, leaving many homeowners with underwater mortgages. Default and foreclosure rates skyrocketed. At least some of this turmoil was caused by the mortgage lenders themselves and other large financial institutions and their free use of mortgage-backed securities. Now, those large financial institutions must provide billions of dollars of aid to affected homeowners as part of their settlements with the Justice Department over allegedly misleading investors about the nature of those mortgage-backed securities and mistreating borrowers. Will that money end up in your pocket?
Bank Settlement By The Numbers
The settlements reached in the wake of the 2008 crisis were the biggest in history, topping $100 billion in total. Of that amount, about half went to the federal government – mostly through Fannie Mae and Freddie Mac. States got about $5 billion and nearly $45 billion was earmarked for consumer aid. So, a large chunk of the settlement is in the hands of Uncle Sam, to spend as Congress sees fit. Another large portion is in the hands of the states and can be used for anything – New York is using some of its settlement funds to repair the Tappan Zee bridge, build a new horse barn on the state fair grounds, and extend high-speed internet access, among other things.
What A Bank Settlement Means For Consumers
So states can use their portion of each big bank settlement for infrastructure investment and the federal government can use it however they want. What about the consumer portion?
It turns out that’s a little more complicated. Banks have promised a certain amount of consumer aid as part of each settlement – Bank of America, for example, promised $7 billion of aid to consumers, Citigroup promised $2.5 billion, and JP Morgan promised $4 billion. That doesn’t mean each bank is going to pay out that amount, so the consumers who lost their homes to foreclosure or lost a large chunk of the value of their homes aren’t simply going to get a check to cover their losses.
Instead, banks get credit toward their promised amount of consumer aid for a variety of activities according to the rules of the settlements. For example, they get credit for forgiving the payments of people who are behind on their mortgages or for lowering their interest rates. They also get credit for donating to local housing agencies and legal aid groups dedicated to helping homeowners navigate the mortgage process. They can get credit for providing mortgage to borrowers who make less than the median income in low-income areas and for participating in programs to rehabilitate neighborhoods that were hit particularly hard during the recession. They can get credit for providing loans to borrowers who lost their homes to foreclosure or short sales as a result of the crisis.
These rules are a good thing in some ways – prior settlements have let the banks determine how to spend the money, which means it was unlikely to ever reach consumers in a meaningful way at all. These rules direct the spending to efforts that are genuinely designed to help borrowers. In other ways, however, the rules limit the amount of aid consumers can realistically access. The banks are the ones who decide which areas to invest in and which struggling borrowers to help with forgiveness and interest rate adjustment. In addition, federally-backed loans aren’t eligible for forgiveness of the principal loan amount at all, although banks may be able to lower the interest rates on those loans.
What Does This Mean For Me?
Unfortunately, there isn’t a clear path to guarantee that you get the benefit of a bank settlement, even if you were directly affected by the 2008 crisis. Your best option is to reach out to your lender if you’re struggling to get or keep up with a mortgage or if you lost your home and ask about your options. They may be willing to work with you to either help you reorganize an existing mortgage or get a new one (even if you previously lost a home to foreclosure or short sale). You may also want to contact your local chapter of NeighborWorks America or Interest on Lawyers Trust Accounts (IOLTA); these 2 nonprofits receive part of the consumer aid portion of the big bank settlements and may be able to help you get your mortgage back on track or get a new mortgage.
If you need help with your mortgage, you should act quickly. According to the independent monitor tracking JP Morgan’s settlement progress, that bank has already provided more than $3.5 billion of its promised $4 billion in consumer aid, through more than 150,000 transactions. Citigroup has provided about $175,000,000 of its promised $2.5 billion in aid in around 3,500 transactions. Bank of America has topped $4 billion in aid in more than 40,000 transactions. In other words, the banks are making progress toward the end of their settlement-related obligations and the window to take advantage of them is closing.
If you’re struggling to keep up with your payments or facing foreclosure, you have options for keeping your home. Visit us today for a free consultation to learn about your legal rights and options.