America's $26 billion Mortgage Settlement

$26 billion mortgage bailoutThere could be a small reprieve coming soon for thousands of Americans whose homes were foreclosed.

Thursday morning, a $26 billion settlement was announced between the US Governent and America’s five largest banks: Ally Financial, Bank of America, Wells Fargo, JP Morgan, and Citigroup.

The bailout includes $5 billion in cash payments, including $1.5 billion allocated for homeowners who were wrongly or illegally foreclosed on between September 2008 and December 2011. Depending on how many people file claims, each borrower could receive up to $2,000.

The rest of the money goes towards “credits”–to which the banks will receive to help current homeowners who are at risk of default. With the money, the banks are supposed to help current homeowners write-down their principal mortgage. In many cases, especially in southern California, the value of their home today is less than their mortgage payoff.

Payback by the banks–sounds great, right? Consider, however, that the money is ultimately being paid by investeors and taxpayers–not the banks. Does this mean the banks are getting a slap on the wrist and ultimately “off the hook”? In last month’s State of the Union address where President Obama revealed his plan to recover the housing market, the President called for a new financial crimes unilt to pursue mortgage-related fraud which means the banks might not be free and clear just yet.

Is the bailout enough to save the housing market or just enough to stir controversy? Some consider $2,000 a minimal payback to those who have been put out of their homes by wrongful foreclosure. In Southern California, that amount of money is lucky to pay a family’s rent for one month.

The other big issue we see is with the funds that are going towards helping current under water homeowners. It’s been suggested that there could be as much as $20,000 per under water homeowner used to pay down principal. Unfortunately, that’s just a drop in the hat–many owners are $50,000 – $100,000 under water, or more.

Check out this video below with Henry Blodget and Aaron Task of the Daily Ticker blog for another perspective on this recent mortgage settlement.

How do you feel about this recent news? Are we moving in the right direction with this bailout or should the US Govt have left the housing market alone to stabilize itself? Tell us your thoughts in the comments section below.

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