Robo-signing – Can it Boost Short Sales?
The government’s $25 billion settlement with the nation’s five biggest mortgage servicers over “robo-signing” practices could boost short sales, as loan servicers will receive credit when they approve sales that include forgiveness of a portion of underwater homeowner’s debt. Although the settlement is only expected to help a fraction of homeowners who owe more than their properties are worth, it will also help bring certainty back to housing markets by removing some of the obstacles that have been keeping homes stuck in the foreclosure pipeline.
Detailed terms of the agreement between mortgage servicers and a coalition of state attorneys general and federal agencies were filed earlier this month. Broadly, the statement calls for mortgage servicers to pay $5 billion in fines and commit to a minimum of $17 billion in homeowner relief, including principal reductions. Another $3 billion is earmarked for helping underwater borrowers refinance.
A researcher at the Brookings Institution told The Wall Street Journal that the settlement could help about 5 percent of underwater borrowers, or about 500,000 homeowners.
The settlement doesn’t prevent the government from punishing wrongful securitization conduct that will be the focus of the new Residential Mortgage Backed Securities Working Group, HUD noted. State and federal authorities can also pursue criminal enforcement actions related to conduct by servicers, including civil rights, fair housing, fair lending, and other violations. Also, if the remaining six to 14 loan servicers sign on to the settlement, it would grow about $30 billion with more than $45 billion to benefit homeowners, HUD said.
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