Was the Mortgage Settlement Effective?

by on Mortgage

Mortgage Contract

It took state attorney generals and the five major lenders who engaged in robo-signing (and other unethical actions and inactions) a long time to reach an agreement that all parties could live with; however, in April these 5 lenders and 49 state representatives agreed to a $26 billion settlement agreement.

The question now is not about the details of the agreement, but rather has the mortgage settlement agreement been effective? In other words, has the mortgage settlement agreement truly helped struggling homeowners and the overall real estate market?

Homeowners are Benefiting from the Mortgage Settlement

According to CNN, one couple received a letter from Chase that essentially changed their lives. The letter stated that the interest rate on their mortgage would be 2.8% over the next year and rise to 3.9% for the duration of their loan. Although this may not seem like much, this gesture reduced their monthly mortgage payments by over $200, making their mortgage payments affordable.

It seems as though many homeowners are benefiting from the mortgage settlement agreement with approximately $10.6 billion of the $26 billion already reaching homeowners. The agreement requires lenders to distribute the full $26 billion over a period of 3 years. So far it appears as though they have been keeping their end of the agreement; however, we won’t know all of the details until the November report is released.

Why, exactly, have lenders already paid out $10.6 billion of the $26 billion? Incentives.

Incentives for Lenders

Although lenders have 3 years to fulfill their settlement obligations, the final agreement provides incentives for lenders to push out a majority of these modifications within the first year. Therefore, in order to receive the desired "credit," lenders are actively working to modify as many home loans as possible.

Chase Pulls Ahead of the Pack

Chase was apparently ahead of other lenders already having a team in place at the conclusion of the settlement agreement. The team was created specifically to handle the analysis of existing loans and determining whether or not these default or underwater mortgages met the modification criteria; therefore, it is not too surprising to see their borrowers already benefiting.

So far Chase has modified over 3,000 mortgages for a grand total of $369 million.

In the end, homeowners are finally receiving some help as lenders work to fulfill their end of the mortgage settlement agreement. Due to the incentives, many lenders will be actively working to modify as many homes as possible within the first year, with the remaining modifications coming in year 2 and 3.