The state attorneys general and federal prosecutors will likely file the actual $25 billion foreclosure settlement documents in court by the end of the month, according to a source familiar with the deal.
The top five servicers agreed to general terms in the settlement last week, which would include billions in principal reduction, refinances, and even pay outs to homeowners affected by missteps in the process.
Questions arose recently over whether the finalization of the deal would its change the scope.
Rich Andreano, who co-leads the mortgage banking group at law firm Ballard Spahr, said while it will be difficult for analysts and officials to anticipate precisely how much aid each state will get from the deal until the documents are filed, results should not vary too significantly from the announcement made last week.
“I got the sense last week that they weren’t really ready. They weren’t done. It was one of those things where they were moving so fast that they had to announce it because it was getting leaked out,” Andreano said in an interview.
But the wait is centering around the complexity of the deal.
“We just reached a very large and complicated joint state-federal settlement,” said a spokesman for Iowa AG Tom Miller, who led the investigation and talks. “We are now preparing the materials we must file in court to formalize this agreement.”
For every dollar a servicer writes off, it will get around 50 cents of the $17 billion in settlement “credits.”
So, officials were quick to point out last week that the settlement would result in roughly $34 billion in total principal forgiveness, maybe as high as $40 billion in eventual assistance. When the documents are finalized, Andreano expects the impact to be between $30 billion and $35 billion.
“I don’t think there would be any dramatic changes in the numbers,” Andreano said.
Servicers and AGs are working out exactly how much credit will be distributed and for what loans. Department of Housing and Urban Development Secretary Shaun Donovan said last week under the loose agreement struck, servicers would get fewer credits for write downs performed on mortgages backing private-label bonds, sparing investors from the brunt of the settlement.
Also part of the deal includes payouts to borrowers who were either foreclosed on during a modification or were wrongfully foreclosed upon all together. Under the agreement, an estimated 750,000 of these borrowers could get up to $2,000 in reimbursements.
New York and California were a part of a group last to sign onto the deal. California AG Kamala Harris said she expects roughly 250,000 homeowners in the state to get a write down over the next three years because of the deal. Another 140,000 could get the $2,000 restitution.
“This outcome is the result of an insistence that California receive a fair deal commensurate with the harm done here,” Harris said at the time.
With so many borrowers there and in other states applying for the long awaited write downs, servicers will be spending the better part of the year increasing employees and training staff.
“They’re going to need more people to handle this,” Andreano said. “And they are going to need a certain level of expertise and competency. This could take years.”
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