Homeowners Get Bulk of the Benefits From Mortgage Plan - New York Times

Some, like Jessica Cooper of Toledo, Ohio, will discover the program’s limitations.

Since she was laid off in June 2009, Ms. Copper and her husband have been pressing Bank of America to modify the terms of the $112,000 mortgage on their home. But because the loan is owned by the Federal Housing Administration, it is not covered. Similarly, Carlos Sandoval de Leon has been seeking a break from Wells Fargo on the $662,000 he owes on a Brooklyn brownstone. But because that mortgage is held by a private investor, it too falls outside the scope of the agreement, which mostly covers loans held by the banks themselves.

The bulk of the settlement, about $20 billion, would go to one million American homeowners who would have their mortgage debts reduced or their loans refinanced at a lower interest rate. It also includes $1.5 billion for roughly 750,000 people who lost their homes to foreclosure between 2008 and 2011, with each receiving between $1,500 and $2,000.

Economists do not expect a big boost for the economy, in part because the banks have three years to distribute the aid. Some experts questioned whether the accord would do much to stabilize the housing market and its glut of millions of foreclosed homes.

Critics also pointed to the fact that millions of mortgages owned by the government’s housing finance agencies, Fannie Mae and Freddie Mac, would not be covered under the deal, excluding about half the nation’s mortgages.

“The effect of this settlement will be catalytic,” Shaun Donovan, the secretary of Housing and Urban Development, said in an interview.

He predicted it would spur more loan modifications through existing government programs as well as principal reductions — when loan debt is written down for borrowers who owe more than their home is worth — as well as additional mortgage relief provided by banks.

“We do believe there should be principal reduction at Fannie Mae and Freddie Mac,” he added. “We’ve been disappointed that this hasn’t happened thus far.” He said the government had proposed incentives for Fannie and Freddie to cut loan balances under an existing program, and the two mortgage giants were studying the idea.

Advocates for homeowners facing foreclosure expressed cautious optimism after the settlement was announced Thursday morning in Washington. “We’re hopeful,” said Joseph Sant, a lawyer at Staten Island Legal Services’ homeowner defense project. “But we had a lot of programs that are good on paper. What will make the difference is that it’s vigorously enforced.”

President Obama declared the deal the largest federal-state settlement in the nation’s history.

“No compensation, no amount of money, no measure of justice is enough to make it right for a family who’s had their piece of the American dream wrongly taken from them,” he said. “And no action, no matter how meaningful, is going to by itself entirely heal the housing market. But this settlement is a start.”

Homeowners in two states — Florida and California — will reap more than half of the $26 billion settlement, a reflection of the disproportionate number of loans that are delinquent or exceed the value of the underlying property there, government regulators said.

The amounts from individual banks were linked to their share of the servicing market. The biggest, Bank of America, would provide $11.8 billion, followed by $5.4 billion from Wells Fargo, $5.3 billion from JPMorgan Chase, $2.2 billion from Citigroup and $310 million from Ally. Bank of America would contribute an additional $1 billion for Federal Housing Administration loans.

And if nine other major mortgage servicers join the pact, a possibility that is now under discussion with the government, the total package could rise to $30 billion.

Banks stocks were mixed in trading Thursday, but shares of Bank of America rose 0.62 percent to $8.18, its highest level since September. Much of the money to pay for the settlement has already been reserved, and investors expect the settlement to remove at least one legal worry for Bank of America.

Shaila Dewan contributed reporting.

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