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Florida homeowners to receive $8.4 billion in mortgage relief in landmark settlement

Struggling Florida homeowners will receive $8.4 billion through loan modifications, lowered principal and other relief as part of a landmark $25 billion federal-state agreement with five of the country's biggest banks.

The settlement announced Thursday includes payments of up to $2,000 to some who have lost their homes through questionable foreclosure practices.

The Obama administration has estimated that up to 1 million homeowners could benefit, roughly a third of them in Florida. Based on the number of delinquent borrowers in Tampa Bay, as many as 100,000 property owners here may get help.

But it will be months, if not years, before some of the promised relief trickles down to many families. In the meantime, some predict, the housing market may get worse before it gets better.

"The immediate results are not going to be all that pleasant," said Mark Vitner, an economist with Wells Fargo. His bank is one of the biggest lenders in Florida as well as a participant in the settlement. "The amount of foreclosures will actually increase and there will be some additional downward pressure on home prices."

Federal and state officials have been investigating accusations that lenders used robo-signers and false documentation to speed up the foreclosure process. The five banks signing the settlement are released from civil claims related to the abuses, but they still face possible criminal claims from regulators as well as suits filed by investors and individual homeowners.

Critics think the deal is too little help for too few borrowers, and in the end, too lenient on the banks.

St. Petersburg lawyer Matt Weidner believes the agreement will pass the banks' losses to investors who bought mortgage-backed securities.

"This is a back-door bailout for the banks," Weidner said. "Much of this money will come from individual investors on the streets. This cash will come from the everyday taxpayer."

The deal could help break a logjam that has stalled foreclosures from moving through courts, a scenario that has allowed some delinquent homeowners to stay in their homes more than two years without making any mortgage payments.

Removing the robo-signing controversy "is one less financial hurdle that needs to clear," said University of Central Florida economist Sean Snaith.

But the agreement doesn't do much to help homeowners who banks wrongfully kicked out of their homes, Snaith said, adding: "The sick patients got none of the medicine."

The groundwork for the deal was paved Wednesday after California and New York, two of the biggest holdout states, agreed to participate. One of the sticking points was determining guaranteed amounts for high-foreclosure states like California and Florida.

Florida Attorney General Pam Bondi confirmed the state's participation in the settlement Thursday morning. "This agreement holds banks accountable and puts in place new protections for homeowners in the form of strict mortgage servicing standards," she said in a statement.

Florida's share of the benefits includes:

• An estimated $7.6 billion in benefits from loan modifications, including principal reduction, and other direct relief.

• About $170 million in cash payments to Florida borrowers who lost their homes to foreclosure from January 1, 2008, through Dec. 31, 2011, and had "suffered servicing abuse."

• About $309 million toward refinanced loans to Florida borrowers who are currently "under water," owing more on their mortgages than their home is worth.

• A direct payment of $350 million to the state of Florida for consumer protection and foreclosure protection programs.

Because of the complexity of the agreement — the second-largest civil settlement in U.S. history next to 1998's tobacco industry deal — federal officials said borrowers will not immediately know if they are even eligible. And the timetable for a payout is lengthy.

Over the next 30 to 60 days, negotiators will pick an administrator to handle logistics of the settlement and to monitor compliance.

Then it will take another six to nine months for the administrator, the attorneys general of 49 states (Oklahoma did not participate) and the mortgage servicers to identify which homeowners would qualify for immediate cash payments, principal reductions and refinancing. Those eligible will receive letters.

The settlement will be executed over the next three years.

Weidner doesn't expect many current or former homeowners to ever see money from the settlement. He pointed to other federal foreclosure-prevention programs that have been bogged down by bank red tape.

"There is little or no enforcement mechanism in this," Weidner said. "It's letting the banks walk away scot-free."

Times staff writer Bill Varian contributed to this report. Contact Jeff Harrington at jharrington@tampabay.com or Mark Puente at mpuente@tampabay.com.

Attorney General Eric Holder, left,  and HUD Secretary Shaun Donovan listen to President Obama discuss the deal.

Getty Images

Attorney General Eric Holder, left, and HUD Secretary Shaun Donovan listen to President Obama discuss the deal.

Florida homeowners to receive $8.4 billion in mortgage relief in landmark settlement 02/09/12 [Last modified: Thursday, February 9, 2012 11:24pm]
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