New foreclosure plan will help some

Five large banks (Wells Fargo, Ally Financial, Bank of America, Citigroup, and JP Morgan/Chase) handle around 55% of all mortgage payments in the United States, and under threat of suit by state Attorney Generals, they have agreed to give special treatment to an estimated 500,000 of their borrowers and former borrowers.

Over the next nine months these banks are supposed to identify their borrowers who qualify for help and let them know.  There are three programs:

Principle reduction.  To qualify for this program your loan has to be held by the bank in most cases and not involve Fannie Mae or Freddie Mac (they have their own programs about which we have written).  You  have to be behind in payments and be in imminent danger of defaulting. To make it possible for you to keep paying your mortgage, they will reduce the principle on both your first and second mortgages.  How much they will knock off your principle is not clear.

Refinance Program.  This is for “underwater” mortgages when the borrower is current in all payments.  Again, the mortgage must be owned by the bank.  Your interest rate can be reduced to 5.25%.  Not all that exciting, I think.

Previously foreclosed.  If these banks foreclosed on you between 2008 and 2011, you could get a check for somewhere between $1,500 and $2,000.  Not that much.

For more information on the programs, including phone numbers of the banks involved, check out National Mortgage Settlement.

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