What the mortgage statement means to you.

Homeowners who have lost their homes through foreclosure can receive a small premium of up to $ 2,000 under the settlement agreement.

NEW YORK (CNNMoney) – The country’s five largest banks have finally reached an agreement with 49 states to settle charges of abusive and negligent foreclosure practices dating back to 2008.

Under an agreement announced on Thursday, banks will allocate $ 26 billion to aid underwater homeowners and compensate those who have lost their homes due to improper foreclosure practices.

The banks also agreed to change the way they handle and authorize foreclosures.

A group of attorneys general alleged that banks had lost critical papers, cut corners, and recruited robo-signers to testify facts they were unaware of on hundreds of documents daily.

The settlement has been in the works for more than a year.

What did the mortgage lender and loan service provider agree on? Banks and service providers have pledged at least $ 17 billion to cut capital for borrowers who 1) have far more debt than their homes are worth, 2) are behind on payments.

The capital cut averages about $ 20,000 per borrower.

Another $ 3 billion will be used to refinance mortgages for borrowers who have not yet completed their payments. This means that they can benefit from the historically low interest rates at present.

The banks will pay the states and the federal government $ 5 billion, the only hard money involved in the deal. This fund will be used to make payments of $ 1,500 to $ 2,000 to homeowners who have lost their homes through foreclosure. Other funds are paid to legal aid and homeowner organizations to help individuals affected by foreclosure actions or abuse by service providers.

Bank of America will send an additional $ 1 billion direct to the Federal Housing Administration to pay for charges that its subsidiary Countrywide Financial defrauded the housing authority.

In addition, the banks agreed to completely abolish robo-signing and use proper and legal procedures when homeowners go through foreclosure proceedings. They also agreed to end servicer abuse, such as harassing defaulting borrowers to make payments and more frequent capital cuts in their mortgage modification programs. (Mortgage business could bring billions of dollars in relief)

Will my mortgage lender participate in this settlement? Bank of America (BAC, Fortune 500), Wells Fargo (WFC, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Citigroup (C., Fortune 500) and Ally Financial (GJM)
take part in the settlement.

Additionally, nine other unnamed loan service providers could join the settlement later, bringing its value to $ 30 billion.

However, loans owned by Fannie Mae and Freddie Mac are not part of the deal. (Obama Proposes New Home Loan Refinance Program)

The Federal Housing Finance Agency, which oversees the two state-sponsored mortgage giants, will not allow any balance cuts on loans insured by the companies under the settlement.

I lost my home to foreclosure; How do I know if I am entitled to payment? If you were foreclosed in the 2008-2011 calendar years, you may be eligible for a payment of up to $ 2,000. Individuals who think they might qualify should inform their bank.

The exact amount of the payments will depend on how many people participate in this part of the settlement. They will participate equally in a $ 1.5 billion pool. The US Department of Housing and Urban Development expects around 750,000 former homeowners to take part.

What should I do if I think I am eligible for a capital cut or a refinanced mortgage? Contact your lender / service provider and ask them to review your case.

If I take the money, what rights do I give up? Individual borrowers do not waive the right to sue.

As part of that deal, the attorneys general gave up the right to sue the mortgage administrators for foreclosure abuse due to the robo-signing scandal. However, they reserve the right to sue if they uncover any improper conduct while granting or securitizing a loan.

When will the new rules and banking guidelines take effect? Most of them are already part of the bank guidelines.

When are homeowners paid? HUD said the settlement would be submitted to a court for approval within two weeks. It is not known how long it will take for a court to decide.

Homeowners discharge must be completed within three years, but the Attorneys General and the HUD want it to be brought forward and completed within 12 months.

Do I have to pay tax on the main reductions or withdrawals? If the capital is reduced in 2012, it is not subject to income tax.

Because the Mortgage Debt Relief Act of 2007 allows taxpayers to exclude income from debt relief at their primary residence. However, the law is expected to expire at the end of this year.

So if the law is not renewed and the capital cut occurs in 2013, borrowers may be required to pay tax on the settlement amount.

It’s not clear if you would have to pay tax on the $ 1,500-2,000 withdrawal. The IRS declined to comment on the issue.

Which state did not participate and what does it mean if you live in this state? Oklahoma was the only holdout in the 50 states. Instead, it announced its own comparison with the five banks on Thursday.

The Oklahoma Attorney General said the banks agreed to pay $ 18.6 million in damages, part of which will compensate homeowners who fell victim to unlawful and unfair mortgage practices.

Homeowners who believe they have been wrongly foreclosed should visit the Oklahoma Attorney General’s website and complete the paperwork to process a claim.

Does the comparison make it harder to get a mortgage? The new rules and regulations the banks agreed to as part of the settlement are unlikely to have any impact on future borrowing as most of the procedures are already in place, said Keith Gumbinger of HSH Associates, a mortgage information provider.

Nor should the actual cost of the settlement to banks deter lending. (Housing: The One Bailout America Really Needs)

Only $ 5 billion of the $ 26 billion settlement will cost banks direct. The rest is the cost of modifying mortgages. However, many of these changes may be in the banks’ best interests as the alternative may be foreclosure, which can cost banks more than changes.

Have you been sealed off? Do you think the banks owe you money? Send your story and contact information to [email protected] and you could be featured in one of the next articles on CNNMoney. to the top

First published: Feb. 9, 2012 at 11:16 a.m. ET

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