From the start, housing groups warned against seeing the settlement as a cure-all because many homeowners are excluded.
Most obvious are those whose loans aren’t owned or serviced by the banks on the list: Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial, the former GMAC. Beyond that, a large chunk of borrowers with those servicers are cut off from everything but the promise of better customer service.
The many loans owned or guaranteed by Fannie Mae or Freddie Mac aren’t eligible for principal reduction. And though there’s no such ban for borrowers with loans insured by the Federal Housing Administration, it’s unlikely the banks will target FHA mortgages for aid because that would bring a lower level of settlement credit (but potentially not a lower cost) than reductions to the loans the banks themselves own.
Meanwhile, Fannie, Freddie and FHA borrowers are all blocked from settlement refinancing — for homeowners underwater on their loans — because that relief is only for the bank-owned loans.
“Fannie, Freddie, FHA, that’s the vast majority of loans we work on,” said Dan Ellis, executive director of Neighborhood Housing Services of Baltimore, echoing many other local foreclosure-prevention groups.
On top of all that, homeowners who have any mortgage debt forgiven after the end of 2012 will have to pay federal taxes on the amount as if it were income. That is, unless Congress extends a temporary provision to waive such payments for mortgage debts of $2 million or less.
Banking, real estate and consumer groups are pressing for the move, warning that financially strapped homeowners will be hard-pressed to accept mortgage aid that comes with a big tax bill.
“Congress should make an extension of this law a top priority in order to help as many homeowners facing foreclosure as possible,” said the heads of the Financial Services Roundtable, the Center for Responsible Lending and the Housing Policy Council in joint letters to House and Senate leaders.
Owen Jarvis, an attorney who works on foreclosure prevention at St. Ambrose Housing Aid Center in Baltimore, said the settlement results aren’t perfect but still strike him as praiseworthy.
“I think overall, it’s a fantastic benefit for homeowners,” he said.
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