About 11 million homes—that’s more than one in five—are underwater, meaning the owner owes more on the mortgage than what the property is worth. To assist these beleaguered citizens, the U.S. government and five of the nation’s largest banks recently announced a $26 billion mortgage settlement. So is anything in it for you? Here’s what we know so far.
Who gets help, and what will they receive? The settlement says that it will offer relief to an estimated 1.5 million home owners. (It does not currently specify how far underwater your home must be for you to qualify.) At least $17 billion of the assistance funds, provided by the banks, will be distributed to borrowers in the form of a principal reduction of up to $20,000 or a refinance resulting in lower interest rates, says Stan Humphries, the chief economist of Zillow.com, a real estate website. About an additional 750,000 people whose homes were improperly foreclosed on between 2008 and 2011 will receive a cash payout averaging $1,500 to $2,000.
Is every mortgage holder eligible? Unfortunately, if your loan is owned by either of the government-controlled mortgage giants, Freddie Mac or Fannie Mae, you don’t qualify. The settlement applies only to privately held mortgages issued by Bank of America, J.P. Morgan Chase, Citigroup, Wells Fargo, or Ally Financial. Another nine mortgage lenders are expected to join the agreement over time, says Humphries. For details, go to NationalMortgageSettlement.com.
When will the aid become available? Home owners must be patient. Banks are required to comply within the next three years or face penalties, but the process is lengthy: It will take at least six to nine months to identify qualified borrowers, says Keith Gumbinger, the vice president of HSH.com, a mortgage-information website.
How do you obtain this mortgage relief? If you meet the requirements, your lender will be in touch. Think you’ll qualify for assistance? “Contact your lender to see if they have any information, and start gathering the required paperwork—including pay slips, tax returns, and asset statements—to expedite the process if and when you become eligible,” says Gumbinger.