National Mortgage Settlement

Written By: Emil FleysherJuly 3, 2012,

National Mortgage Settlement seems to take some time.

As part of the national mortgage settlement signed in March of 2012, Chase, Bank of America, Citigroup, Wells Fargo, and Ally Financial have agreed to offer at least $10 billion in loan forgiveness or principal reduction. In fact, they are offering it to an estimated 11.1 million homeowners who are in default or underwater. After three months the banks' distribution of this relief is slow. According to housing counselors that The Huffington Post surveyed, only a few individuals got an offer of a principal reduction. That is out of dozens who applied for modifications. These institutions are not indicating how much principal they have written off. Even though a report to the government on their efforts is due in September of 2012.

Baloon Payment

It seems that principal reductions are very rarely seen. And, banks are more likely to offer the homeowner a principal forbearance. It moves the payment of most of the debt to the end of the loan's term. In fact, this is identified as a balloon payment. During the first few years of the housing crisis, banks and other institutions that service loans made life difficult for hundreds of thousands of homeowners. All of those who tried to obtain a loan modification and failed. Moreover, the institutions lost paperwork, failed to follow up with borrowers. And, they even pushed homeowners who were current on their payments into foreclosure.

However, there seems to be a reasonable explanation as to why there still has not been much change these last few months. Fannie Mae and Freddie Mac, which are the government-backed mortgage giants that control 60 percent of the mortgage market refused to participate in principal reduction; except for limited circumstances. These two entities hold 29.2 million mortgages, 3.3 million of these loans are underwater. According to Edward Demarco, director for the Federal Housing Finance Agency; loan write-downs are a "moral hazard" since the practice might encourage borrowers now current on their mortgages to stop making payments.

Only time can tell whether or not this new settlement will actually help the millions of homeowners across the country desperately reaching out for help.

If you have questions about foreclosure, loan modification, bankruptcy, or other alternatives, please feel free to call my office at 954-484-9987, send an e-mail to, or complete the contact form below.

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