The Attorneys General of 49 states recently reached a $25 billion settlement deal with five of the largest banks to help homeowners and people who have lost their houses to foreclosure.

After the housing bubble collapsed five of the largest mortgage holding banks, Ally/GMAC, Bank of America, Citi, JPMorgan Chase, Wells Fargo, were caught committing mortgage fraud by signing mortgage foreclosures without doing the proper background research or due diligence. And as a result thousands of homeowners were foreclosed on unjustly. The Attorneys General from several states called on the banks to put holds on their foreclosure proceedings and opened an investigation, which resulted in the settlement.

The specific terms of the settlement are still coming to light but this settlement will help millions of homeowners and people who were foreclosed on. Under the settlement the banks will:

• Send checks to homeowners who were foreclosed upon.
• Offer principal reductions for homeowners needing loan modifications.
• Provide refinancing for borrowers who are current on their payments but whose houses are worth less than they paid for them.
• Give money to fund state consumer protection programs and state foreclosure protection efforts.
• Reform servicing standards to require single point of contact, adequate staffing levels and training, better communication with borrowers, and appropriate standards for executing documents in foreclosure cases, ending improper fees, and ending dual-track foreclosures for many loans.

Because of the size of the deal, the banks have three years to fully implement it, but people who are eligible to receive benefits or mortgage modifications under the settlement should be contacted by mail.

• Over the next 30 to 60 days, settlement negotiators will be selecting an administrator to handle the logistics of the settlement and monitor compliance.
• Over the next six to nine months, the settlement administrator, attorneys general and the mortgage servicers will work to identify homeowners eligible for the immediate cash payments, principal reductions and refinancing. Those eligible will receive letters.
• This settlement will be executed over the next three years.

To find out more information and to see if you might be eligible to take part in the settlement go to the national mortgage settlement website. Loans owned by Fannie Mae or Freddie Mac are not impacted by this settlement. You may visit the following websites to learn if your loan is owned by either Fannie Mae or Freddie Mac:

Also, please be careful when giving out personal information, especially financial, when it comes to this settlement. People may try to scam victims of mortgage fraud, be on alert.

Details about the terms of the settlement:

I. Relief for Struggling Homeowners

The settlement requires the five banks to allocate a total of $17 billion in assistance to borrowers who have the intent and ability to stay in their homes while making reasonable payments on their mortgage loans. At least 60 percent of the $17 billion must be allocated to reduce the principal balance of home loans for borrowers who are in default or at risk of default on their loan payments. Many homeowners, particularly in states like Florida, Arizona, Nevada and California, have negative equity in their homes and have no realistic ability of refinancing or selling their homes, or to build equity. Principal reductions will also yield lower payments and will give homeowners a fair opportunity to preserve their homes.

In addition to principal reductions, the banks must allocate funds, approximately $5.2 billion, for other forms of homeowner assistance. These options include the facilitation of short sales which allow houses to be bought and sold when the mortgage balance exceeds the value of the property. Another program is unemployed payment forbearance, which will defer payments for homeowners who are between jobs. Other options for funding include relocation assistance for homeowners facing foreclosure, waiving of deficiency balances, and funding for remediation of blighted properties.

II. Refinancing of Underwater Homes

To assist homeowners who are not delinquent on their payments but cannot refinance to lower rates because of negative equity, the banks must offer refinance programs totaling at least $3 billion. The banks will be required to notify eligible homeowners of the availability of these programs. To be eligible, a borrower must be current on mortgage payments, have a loan to value ratio in excess of 100%, and must have a current interest rate in excess of 5.25%. The refinanced rate must reduce monthly payments by at least $100.

III. Mortgage Servicing Reforms

A major component of the settlement is the comprehensive reform of mortgage servicing practices. The new standards will prevent mortgage servicers from engaging in robo-signing and other improper foreclosure practices. The standards will require banks to offer loss mitigation alternatives to borrowers before pursuing foreclosure. They also increase the transparency of the loss mitigation process, impose time lines to respond to borrowers, and restrict the unfair practice of “dual tracking,” where foreclosure is initiated despite the borrower’s engagement in a loss mitigation process.

Specific new servicing standards include:

• Information in foreclosure affidavits must be personally reviewed and based on competent evidence.
• Holders of loans and their legal standing to foreclose must be documented and disclosed to borrowers.
• Borrowers must be sent a pre-foreclosure notice that will include a summary of loss mitigation options offered, an account summary, description of facts supporting lender's right to foreclose, and a notice that the borrower may request a copy of the loan note and the identity of the investor holding the loan.
• Borrowers must be thoroughly evaluated for all available loss mitigation options before foreclosure referral, and banks must act on loss mitigation applications before referring loans to foreclosure; i.e. "dual tracking" will be restricted.
• Denials of loss mitigation relief must be automatically reviewed, with a right to appeal for borrowers.
• Banks must implement procedures to ensure accuracy of accounts and default fees, including regular audits, detailed monthly billing statements and enhanced billing dispute rights for borrowers.
• Banks are required to adopt procedures to oversee foreclosure firms, trustees and other agents.
• Banks will have specific loss mitigation obligations, including customer outreach and communications, time lines to respond to loss mitigation applications, and e-portals for borrowers to keep informed of loan modification status.
• Banks are required to designate an employee as a continuing single point of contact to assist borrowers seeking loss mitigation assistance.
• Military personnel who are covered by the Service members Civil Relief Act (SCRA) will have enhanced protections.
• Banks must maintain adequate trained staff to handle the demand for loss mitigation relief.
• Application and qualification information for proprietary loan modifications must be publicly available.
• Servicers are required to expedite and facilitate short sales of distressed properties.
• Restrictions are imposed on default fees, late fees, third-party fees, and force-placed
• insurance.

IV. Monitoring and Enforcement

The settlement with each bank will be incorporated into a Consent Judgment that will be submitted to a federal judge for approval. Compliance with the servicing standards and financial obligations of the banks can be ultimately enforced through court process. Civil penalties may be assessed for violations of the Consent Judgment. MISCONDUCT CLAIMS

The banks' performance of their obligations under the settlement will be overseen by an independent Monitor. The Monitor will employ a staff of professionals to review the banks' compliance. The Monitor will issue periodic reports to the attorneys general, including notices of any potential violations.

The banks will report on their compliance in the form of agreed-upon metrics and outcome measures. Included among the compliance metrics are testing for proper documentation of foreclosures, loss mitigation offers and proper evaluation of loan modification applications. There will also be testing to ensure that borrowers' account information is accurate and that any fees are properly assessed and are not excessive. If banks fail to remedy violations, they are subject to civil penalties of up to $5 million from the court.

V. Payments to Foreclosure Victims

Approximately $1.5 billion of the settlement funds will be allocated to compensation to borrowers who were foreclosed on after January 1, 2008. These borrowers will be notified of their right to file a claim. Borrowers who were not properly offered loss mitigation or who were otherwise improperly foreclosed on will be eligible for a uniform payment, which will be approximately $2000 per borrower depending on level of response. Borrowers who receive payments will not have to release any claims and will be free to seek additional relief in the courts. Borrowers may also be eligible for a separate restitution process administered by the federal banking regulators.

VI. Payments to the States

The remaining settlement funds, approximately $2.5 billion, will be paid to the participating states. The funds may be distributed by the attorneys general to foreclosure relief and housing programs, including housing counseling, legal assistance, foreclosure prevention hotlines, foreclosure mediation, and community blight remediation. A portion of the funds may also be designated as civil penalties for the banks robo-signing misconduct.

VII. Release of Claims

The proposed Release contains a broad release of the banks' conduct related to mortgage loan servicing, foreclosure preparation, and mortgage loan origination services. Claims based on these areas of past conduct by the banks cannot be brought by state attorneys general or banking regulators.

The Release applies only to the named bank parties. It does not extend to third parties who may have provided default or foreclosure services for the banks. Notably, claims against MERSCORP, Inc. or Mortgage Electronic Registration Systems, Inc. (MERS) are not released.

Securitization claims, including claims of state and local pension funds, and including investor claims related to the formation, marketing or offering of securities, are fully preserved.  Other claims that are not released include violations of state fair lending laws, criminal law enforcement, claims of state agencies having independent regulatory jurisdiction, claims of county recorders for fees, and actions to quiet title to foreclosed properties. Of course, the Release does not affect the rights of any individuals or entitiers to pursue their own claims for relief.