A settlement has been reached with the five largest mortgage lenders over foreclosure abuses — this deal requires the banks to reduce some loans, send out checks to foreclosed Americans and refinance mortgages for underwater borrowers. Bank of America will pay nearly $8.6 billion. Wells Fargo will pay about $4.3 billion, JPMorgan Chase will pay roughly $4.2 billion, Citigroup will pay about $1.8 billion and Ally Financial will pay $200 million. This does not include $5.5 billion in federal and state payments.At least $10 billion will go toward reducing the principal for borrowers who are delinquent or underwater borrowers at risk of default. This is in contrast to President Obama’s recently proposed housing re-finance program that disallowed owners who missed more than one payment. One in five Americans with mortgages are underwater. On average, these homeowners are underwater by $50,000 each. It’s estimated that in order to completely wipe out all of the negative equity for the 11,000,000 underwater owners it would cost as much as $800 billion. With this settlement, at least $3 billion will go toward refinancing. Other payments will go toward state governments, and the federal government.Roughly one million underwater owners are expected to have their mortgage debt reduced by lenders or able to refinance their homes at lower rates. Another 750,000 people who lost their homes to foreclosure from September 2008 to the end of 2011 will receive checks for about $2,000. The aid is to be distributed over three years. The settlement money will be doled out under a complicated formula that gives banks varying degrees of credit for different kinds of help. As a result, banks are encouraged to help harder-hit borrowers with homes worth far less than what they owe.
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