NATIONAL HOME OWNERSHIP RETENTION PROGRAM

The settlement contains $1.5 billion for 750,000 people who were foreclosed out of their homes between 2008 and 2011 because despite all the evidence of robosigning, faulty court documents and dropped phone calls to mortgage-servicing companies, there wasn’t much the AGs could do.

Nobody knows how the homeowners will get their money.

“The legal right to foreclose is a pretty strong one, a pretty broad one,” Miller told reporters. “There is no right to a loan modification. That was a difficult legal concept, to get to where we would help a lot of people.”

Among the most debated outcomes is the impact on the overall housing market and—because of the housing market’s importance—the American economy. During the settlement negotiations banks were reluctant to initiate foreclosures. This has buttressed the housing market by restricting supply, but left a huge overhang of properties that can be foreclosed.

The process will accelerate. Some families will presumably be spared losing their homes because of settlement funds, but others will not be so fortunate. The result is that many properties could be dumped on to the market. In the short-term this will cause prices to fall and genuine personal agony, but in the longer-term it will clear away a critical source of uncertainty about housing supply and demand. That certainty, ironically, will come at the price of much legal uncertainty.

The settlement also requires the lenders to offer principal reductions and lower interest rates worth as much as $32 billion over the next three years in an effort to keep as many borrowers in their homes as possible.

More controversial is the proposal to reduce the loan balances of borrowers who are both underwater and behind on their payments. The AGs said they modeled their program on an existing one at Bank of America that only offers principal reductions to borrowers who are 60 days behind and can demonstrate an inability to afford the payment they’ve got.

“This settlement represents a step in the right direction,” Masto said in a statement outlining provisions of the agreement between 49 states and mortgage lenders Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc.

Before signing, the attorney general said Nevada won separate promises from Bank of America to set aside $750 million to reduce principal and facilitate short sales in Nevada, to suspend foreclosure sales of any borrower eligible for the National Homeownership Retention Program, and to pay $30 million for state consumer protection programs.

In Nevada, Masto said an unknown number of borrowers will receive an estimated $1.3 billion in benefits from loan term modifications and other direct relief.

She put the value of refinanced loans to underwater borrowers in Nevada at $42 million and said borrowers who lost their home to foreclosure from 2008 to 2011 and suffered servicing abuse would qualify for $57 million in cash payments.

“The settlements do not prohibit Nevada from continuing to pursue criminal actions against the banks,” Masto said in her statement. It also doesn’t stop homeowners or investors from pursuing individual, institutional or class-action civil cases against the five banks.”

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