Homeowners hoping the $26 billion foreclosure abuse settlement would mean big savings on their mortgages were mostly disappointed. Even though a million borrowers will have their principals slashed by as much as $100,000 or more, most are not eligible for a workout simply because the bank that issued their mortgages, didn’t hold their mortgages.
During the housing boom years of the early 2000s through 2007, about 20% of loans went into the bank’s own portfolios. The rest were sold off, either to Fannie Mae or Freddie Mac or to investors.
Only loans held by the banks and some of their investors will be modified. The rest of the borrowers will be left out in the cold.
“It’s not as long a shot as winning the lottery but there’s a lot of chance involved,” said Guy Cecala of Inside Mortgage Finance.
The Department of Housing and Urban Development, which helped negotiate the settlement, recognizes that it left out many homeowners.
“From the outset we have been very clear that the settlement is not intended to solve or resolve all the issues related to the housing crisis,” HUD spokesman Derrick Plummer said earlier this month. “It’s just one step in a host of efforts the Obama Administration is taking to help the housing market recover.
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