Last week, a mortgage settlement between the government and big banks was put into place. The agreement, which allots 20 billion to 1 million U.S. homeowners for lowering debts on their homes or for refinancing with lower interest rates, is considered by the President to be the largest federal-state settlement in history, and he said to the press:

“No compensation, no amount of money, no measure of justice is enough to make it right for a family who’s had their piece of the American dream wrongly taken from them. And no action, no matter how meaningful, is going to by itself entirely heal the housing market. But this settlement is a start.”

But, is this notion accurate? Although the settlement offers relief to some, nearly half of all homeowners (specifically, those with home loans through government housing finance agencies Freddie Mac and Fannie Mae) are left in the cold. So, what, exactly, will the settlement achieve? To break it down:

• Aside from the $20 billion, another $1.5 billion goes to approximately 750,000 homeowners who lost properties to foreclosure between 2008 and ’11. This amounts to $1,500 to $2,000 per individual.
• Banks have three years to distribute the aid.
• The amount banks give out is tied to their market shares. Bank of America will distribute $11.8 billion, Wells Fargo $5.4 billion, JPMorgan Chase $5.3 billion, Citigroup $2.2 billion, and Ally $310 million.
• The banks are being partially held accountable for their past practices, such as robo-signing.

Although all points are a small step toward resolving the financial crisis, a few negative points clearly stand out. First, why no aid to those with Fannie Mae/Freddie Mac mortgages? Although the government proposed incentives to the two entities, no plan or resolution has been reached. Second, economists think that the settlement will give no boost to the economy, as the amount is drawn out over three years. Third, $2,000 or less to each homeowner who lost property to foreclosure is really only a drop in the bucket.

Related articles

• $26B Mortgage Settlement a ‘Modest’ Help: Experts (newser.com)
• Mortgage Settlement: Do the Big Banks Owe You Money? (usnews.com)
• Why Millions Won’t Get Help From Big Mortgage Settlement (gloucestercitynews.net)

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