Arizona residents are expected to receive about $1.6 billion from the nationwide foreclosure settlement announced today.
The settlement comes after a year of negotiations between the nation's five largest mortgage servicers, the federal government, and attorneys general from 49 states. The mortgage servicers will pay $25 billion to settle the suit which alleged foreclosure abuses, including improperly dealing with property owners who sought mortgage relief.
The settlement is an effort to hold mortgage servicers accountable for a variety of abuses that led to the housing market's collapse as well as provide aid to about 2 million homeowners.
The settlement could grow to as much as $45 million if nine additional mortgage servicers sign it.
Of the $25 billion, $17 billion will go to current homeowners who need help to prevent foreclosure; the money will be distributed by reductions in the principal still owed on mortgages. Another $5 billion will be paid to the states to fund foreclosure prevention efforts. About $3 billion will go to refinancing moves that will lower homeowners' interest rates and about $1.5 billion will be paid out to certain homeowners who were affected by improper foreclosures.
Arizona also filed a separate lawsuit against Bank of America in 2010. A news report today stated that Bank of America has agreed to pay Arizona another $10 million to settle that suit. Some of this will go to homeowners who were affected by the bank's foreclosure tactics, and some of it is earmarked for those who are currently underwater on their mortgages.
About 11 million U.S. homeowners currently owe more on their mortgages than their house is worth, according to news reports.
Of the larger, national settlement, hundreds of thousands of U.S. homeowners should receive some money. The checks will likely be modest, between $1,500 and $2,000, according to reports.
While the settlement is expected to foster the housing market's recovery, it has been predicted that a wave of home foreclosures will come first. This is due to a backlog that developed last year while lenders were in negotiations. Foreclosures that could have happened last year will come through this year, and as many as 25 percent more foreclosures are expected in 2012 than in 2011.
Source: Bloomberg, "Foreclosure Deal to Spur U.S. Home Seizures," Prashant Gopal and John Gittelsohn, Feb. 9, 2012