Some Homeowners to Get Principal Reductions?

In an approximately $20 billion to $25 billion deal reached between federal regulators and banks, about one million homeowners could receive principal reductions on their mortgages. The settlement was reached to resolve acts of robo-signing and other unlawful foreclosure practices engaged in by the banks. By agreeing to the settlement banks are avoiding the risk of federal government lawsuits, though states could still go after the banks civilly. The banks participating in the deal include Bank of America, Wells Fargo, J.P. Morgan Chase, Citigroup and Ally Financial.

It is unclear how the money will be distributed or how homeowners will qualify or apply for this program. The mortgages that qualify for principal reduction will be limited to private mortgages that were foreclosed upon between 2008 and 2011. Since this program is limited to private mortgages, all mortgages owned by Fannie Mae and Freddie Mac (about 50 percent of all mortgages, or about 31 million mortgages) will not qualify.

Approximately 750,000 mortgagees (about half the number who will qualify for this program) will receive checks for $1,800. The banks will put $5 billion in reserve accounts for state and federal programs, part of which would be used to cover the $1,800 checks. One million mortgagees could have their principal reduced by around $20,000 (this will account for approximately $17 billion of the settlement). And $3 billion would be used to help homeowners refinance at 5.25 percent.

I see this deal as being a big coup for the banks and not much help to homeowners. A check for $1,800 isn't going to make a difference for someone who already lost their home to foreclosure.