Home Mortgage Settlement May Offer Debt Relief for Some Consumers

The housing settlement recently announced by the federal government should make it easier some homeowners to modify their mortgages and escape home foreclosure, but consumer advocates say it won’t help everyone recover their losses.

The settlement will provide payments of between $1,500 and $2,000 to people who have already lost their homes due to foreclosure, but relief won’t come quickly, according to a report from Reuters.

In fact, consumer advocates are skeptical about many features of the home mortgage program.

Mortgage Settlement May Help Homeowners Avoid Foreclosure

Reuters reports that homeowners should be aware of several key features of the housing settlement, including:

  • Act quickly. According to Alys Cohen, a staff attorney with the National Consumer Law Center, borrowers must act quickly to modify their mortgages before the end of the year because the tax break offered by the settlement expires at the end of 2012. So, consumers must be aggressive in seeking to modify their loans.
  • Five major banks. The current settlement only applies to borrowers who have mortgages from the five banks that signed on to the agreement, which include Bank of America, Ally Financial, Citigroup, JP Morgan Chase, and Wells Fargo & Co. If your mortgage did not originate from one of these banks, you will have to wait for another settlement that is expected to eventually be reached with other lenders.
  • Slow relief. Unfortunately, the relief offered by the settlement will not come quickly. Sources indicate that mortgage providers will be offering relief to consumers over the next six to nine months, but that they are allowed three years for the entire process to take place.
  • Fannie Mae or Freddie Mac limitations. Another weakness of the settlement is that homeowners whose mortgages are backed by Freddie Mac or Fannie Mae will not qualify for the main reduction. In addition, borrowers in Oklahoma will not receive all the advantages of the program because the state opted out of the agreement.

So, while the plan has its limitations, homeowners who are facing foreclosure or struggling with home mortgage debt still have other options.

Chapter 13 bankruptcy, for example, may help homeowners prevent foreclosure. In Chapter 13, filers get an opportunity to stop home foreclosure proceedings and catch up on their mortgage payments.

Chapter 13 is not a magical elixir, but if it is used wisely, filers may be able to save their homes from the hands of their creditors. For more information, contact a Chapter 13 attorney today.

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