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$25B Offers Little Relief For Local Housing Market

The $25 billion legal settlement with five major mortgage banks stands to bring some $18 billion in assistance to California borrowers, but won’t improve the local housing market very much, say housing experts.

“We’re a big winner because we were a big loser,” said Michael Lea, director of the Corky McMillin Center for Real Estate at San Diego State University, concerning the relief targeted for the state. “Relative to the size of the problem, the money in the settlement isn’t that big, but for those lucky enough to get some of their principal reduced, it’s going to be helpful.”

The settlement between Ally Financial, Bank of America, Citibank, JPMorgan Chase, and Wells Fargo Bank, and 49 states announced recently intends to provide some relief to hundreds of thousands of homeowners affected by questionable practices by some of the nation’s biggest servicers of mortgages, according to information posted on an official website, NationalMortgageSettlement.com.

The legal action filed by many states sought to halt the widespread use of signing foreclosure documents by bank employees without checking the validity or accuracy of the sworn statements.

The funding aims to prompt banks to modify mortgages for homeowners who have been diligently making payments, but are “underwater” or owe more on their mortgages than their home’s market value, experts said.

Who Will Benefit?

Yet because of ambiguity regarding some of the aspects of the agreement, how the programs will be administered and who will benefit are unclear, said Mark Goldman, a lecturer at SDSU’s McMillin Center and longtime mortgage broker.

“Will the money actually go to those in need or will the money get siphoned off at the state level for different uses?” Goldman said.

Among the terms of the legal agreement is providing $2,000 to the former owners of homes that were foreclosed on between 2008 and 2011. Goldman and others said that’s essentially nothing, given the loss of a home.

The settlement doesn’t exclude the banks from further prosecution on a variety of issues, including criminal fraud, that the banks were trying to include in the pact, Goldman said.

“At best this is really a slap on the hands for those banks for being sloppy about what they did,” he said. “But will it improve the housing market? No.”

Whether a borrower may take advantage of the settlement depends on his individual circumstances, but requires proving some financial hardship and difficulty making monthly payments, said Tom Goyda, spokesman for Wells Fargo Bank.

The program only affects mortgages that Wells owns, not those owned by Fannie Mae and Freddie Mac. Wells has been modifying mortgages, primarily those it obtained from its 2008 acquisition of Wachovia Bank, and has forgiven some $4.1 billion in mortgage principal since 2009, Goyda said.

Preventing Some Foreclosures

Jay Berger, a Realtor with SoCal Real Estate Consultants in Carlsbad, said the settlement should help prevent some homes from going into foreclosure, which will abate further deterioration of the market.

However, the agreement doesn’t address all those underwater homeowners whose mortgages are owned by Fannie Mae and Freddie Mac. There is still a long way to go before all the distressed properties are worked through, and until that happens, the market won’t get back to being normal, Berger said.

Rick Ungar, a real estate broker with Casa Bella Realty Services in Carlsbad, said he had little confidence that the new settlement will make much of a difference in the local housing market.

“It may help some homeowners, but most of these government programs haven’t worked very well. … It’s just another Band-Aid,” Ungar said.

Sales activity in the San Diego market has been erratic in recent months, but for the most part, homes that are priced near the current market rate are moving well, Ungar said. “Demand is high on well-priced properties,” he said. “I know of several homes that went into escrow within 24 hours after hitting the market because these were equity sales that were well-priced.”

According to a Feb. 15 report from the California Association of Realtors, the statewide median price for existing single-family homes fell 6.7 percent to $268,220 from December to January. The price declined 3 percent from the prior year’s January.

For San Diego County, the median price of a single-family home decreased 2.6 percent to $350,680 from December to January, and fell 5.2 percent in the past year, the CAR report stated.

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