Major banks settle with homeowners. Are you entitled?

If your home loan is serviced by one of the five major lenders – including Bank of America and Wells Fargo – you may be entitled to a share of one of the largest civil settlements in history. 

If your home loan is serviced by Ally/GMAC, Bank of America, Citi, JPMorgan Chase, or Wells Fargo – if that’s who you make payments to – keep reading. Likewise if you had a home loan with any of those companies between 2008 and 2011 and your home was foreclosed.

If you have another lender (or the home was in Oklahoma), you might as well stop here and skip to the last paragraph of the article. Sorry, most of this won’t help you – but there is plenty of other refinancing help out there to read up on.

Still here? Then you need to know about the second largest civil settlement state attorneys general have ever obtained. (The largest was, by far, the 1998 tobacco master settlement worth about $206 billion.) In February, the five biggest mortgage companies (named above, and holding around 60 percent of American mortgages) agreed to a $25 billion settlement with the federal government and 49 states – excluding, you guessed it, Oklahoma.

You may soon get part of that settlement, since banks are now starting to cough up cash. The settlement gave them three years, but it includes incentives for acting within the first year and penalties for moving too slowly.

Why this settlement is happening

The settlement is mainly over the “robo-signing” scandal from two years ago –  Lenders “routinely signed foreclosure-related documents outside the presence of a notary public and without really knowing whether the facts they contained were correct.”

This is illegal, and caused major problems – including some people wrongfully losing their homes, and real estate markets freezing up as courts struggled to process the volume of foreclosures. As we’ve argued, this also slowed down the housing recovery, which affects everybody’s home value.

What’s in the settlement

The settlement is enormous, and has a lot of money going in lots of directions. According to the Office of Mortgage Oversight, created to administer the settlement, here’s where…

• At least $17 billion in principal reduction and loan modification for homeowners who are in trouble and need help to avoid foreclosure.
• Up to $3 billion in refinancing for “underwater” homeowners who are current on their mortgages but owe more than their homes’ current market value.
• $1.5 billion in payments to homeowners who lost their homes to foreclosure between Jan. 1, 2008, and Dec. 31, 2011. These recipients will have to complete a simple form, and they will not have to drop any legal claims they may have.
• Payments to the 49 signing states to support the prevention of foreclosure as well as consumer protection and education programs, as well as civil penalties.

We covered part of those first two bullets a couple of weeks ago, in "Surprise! Bank Slashes Some Mortgage Rates." JPMorgan Chase (whose part in the settlement includes $4.21 billion in relief to borrowers and $1.08 billion to the government) has already begun lowering payments, loan balances, or sometimes both for some underwater homeowners who managed to hold on until now.

If that’s your servicer, keep an eye on the mailbox and don’t throw out any correspondence you get. If you haven’t seen anything, call and ask. The call center number for settlement questions is 1-866-372-6901 and their info page is here.

Details about another part of the settlement: money for people who couldn’t keep their homes. This applies to people meeting the following criteria…

• Your loan went to foreclosure sale between Jan. 1, 2008, and Dec. 31, 2011.
• The loan was serviced by one of the five mortgage servicers participating in the settlement.
• You made at least three payments on the loan.
• You lived in or intended to live in the property at the time of origination of the loan.
• Your property was a one-to-four-unit residential property.
• The unpaid principal balance of the first mortgage loan did not exceed $729,750 for a one-unit property; $934,200 for a two-unit property; $1,129,250 for a three-unit property; or $1,403,400 for a four-unit property.

According to the attorneys general, these ex-homeowners should start receiving letters about the settlement early this month, including instructions for how to file a claim, which should be at least $840. (“This estimated payment amount is based on 100% of all eligible borrowers submitting claim forms,” the settlement website’s FAQ says, “and therefore the payment you receive will very likely be higher.”)

What else you can do now

Besides waiting for the mail, here are three other things you should do:

1. Watch for scams.

There’s a lot of money involved here, which makes it a prime target for criminals. If you get a call about the settlement, you shouldn’t need to share bank account info or your Social Security number:- the bank should already have your personal information. If you’re skeptical, ask for contact information and say you’ll call them back – then look up the mortgage number for your bank to check. (The current numbers for all five banks are on the settlement website.) There’s no fee involved, so be wary if one’s mentioned.

2. Stay informed.

Details and timing for much of the settlement still haven’t been worked out – the banks have more than two years to pay up. It’s not a bad idea to periodically check www.nationalmortgagesettlement.com or the website of your state’s attorney general for the latest information. The settlement does not prevent the government, states, or consumers from pursuing or joining other lawsuits, so even Oklahoma might get some money before this is over.

3. Look at other options.

Many may not be eligible for this settlement, and some people can’t afford to wait. Recognize there’s other mortgage help available, including for people with loans held by Fannie Mae or Freddie Mac. Here are some links to remember…

• www.knowyouroptions.com (Fannie Mae)
• www.freddiemac.com/avoidforeclosure (Freddie Mac)
• www.makinghomeaffordable.gov (Everyone)
• www.independentforeclosurereview.com (Everyone)

Brandon Ballenger is a writer for Money Talks News, a consumer/personal finance TV news feature that airs in about 80 cities and around the Web. This column first appeared in Money Talks News.Brandon Ballenger is a writer for Money Talks News, a consumer/personal finance TV news feature that airs in about 80 cities and around the Web. This column first appeared in Money Talks News.