The foreclosure process has been under attack for months now. We have all heard about the faulty practices many banks used that forced many homes to be foreclosed under erroneous conditions.
To try to compensate homeowners for any irregularities, the government negotiated with five banks in an attempt to make amends for errors in the way foreclosures were handled. The result is a $25-billion dollar settlement that is supposed to bring relief to some homeowners and give a stipend to those homeowners whose transactions were not handled properly. This is the second largest settlement in history, only behind the tobacco settlement several years ago.
Bank of America, Chase, Wells Fargo, Citigroup and Ally (formerly GMC Mortgage) have all agreed on the settlement. Nine additional banks are in negotiations.
This does not compensate in any way a homeowner for the loss of his or her home. Compensation is limited to violations with property owners’ rights. Homes were already distressed when the foreclosure process had been initiated. Banks were in reality not equipped to handle the large flow of foreclosures and were using faulty practices such as robo-signing to quickly remove the properties from their books
The funds all go to consumers. Ten billion dollars has been set aside for principle reductions. Mortgages that meet certain guidelines have the opportunity to be reduced starting at $20,000 with a 5.25 percent interest rate. Ten billion dollars is set aside for foreclosure victims and 5 billion is set aside for relief programs. If errors are found in the foreclosure process, individuals could receive up to $2,000 in restitution. Military victims could qualify for up to $117,000. Properties affected were sold between Jan. 1, 2008, and Dec. 31, 2011.
Washington is set to receive $648 million divided in this way:
- $455 million for principal reduction
- $70 million to assist refinance programs
- $45 million for foreclosure victims
- $24 million for foreclosure relief programs
Homeowners should not expect a quick resolution. Banks are expected to take between six and nine months to determine eligibility.
Banks have been reluctant to put foreclosed properties on the market during the negotiations with the government and before new guidelines were in place to prevent any errors in the future. With the agreement, it is expected that there will be a surge in foreclosed properties on the market. This probably will have a downward effect on home prices.
Mathew Gardner, Managing Principal of Gardner Economics, reported Feb. 14 in his Seattle Housing and Economy Report his calculations on the status of distressed properties. In 2009, foreclosures in King County reached the 19.9 percent level. Foreclosures in the fourth quarter of 2011 rose to 35.4 percent. The Eastside reached a 26.1 percent level in 2011. Snohomish County has 50.9 percent of its total transactions in the distressed category.
Gardner is slightly optimistic about the future of the job market. He believes that the private sector is responsible for the unemployment rate registering at least a point lower than national averages.
Hopefully, with inventory presently at very low levels and prospects for the job market to improve in the next year, these properties can be sold quickly. Only when the majority of these homes are off the market will we see a true increase in home values.
Editor's Note: Joan Probala is the managing broker for Issaquah Windermere (Windermere Real Estate/East Inc.). She has 30 years of experience in real estate, construction and sales. She is president-elect (2012) of the Seattle King County Association of Realtors.