$25 Billion Mortgage Settlement: What It Means To You

After many months of negotiation, 49 state attorneys general and the federal government have reached agreement on a historic joint state-federal settlement with the country’s five largest loan servicers: Ally/GMAC, Bank of America,Citi, JPMorgan Chase, Wells Fargo .

The settlement will provide as much as $25 billion in relief to distressed borrowers and direct payments to states and the federal government. It’s the largest multi-state settlement since the Tobacco Settlement in 1998.

Who May be Eligible for Assistance

The settlement provides assistance for:

  • Homeowners needing loan modifications now, including first and second lien principal reduction.  The servicers are required to work off up to $17 billion in principal reduction and other forms of loan modification relief nationwide.State attorneys general anticipate the settlement’s requirement for principal reduction will show other lenders that principal reduction is one effective tool in combating foreclosure and that it will not lead to widespread defaults by borrowers who really can afford to pay.
  • Borrowers who are current, but underwater.  Borrowers will be able to refinance at today’s historically low interest rates.  Servicers will have to provide up to $3 billion in refinancing relief nationwide.
  • Borrowers who lost their homes to foreclosure with no requirement to prove financial harm and without having to release private claims against the servicers or the right to participate in the OCC review process.  $1.5 billion will be distributed nationwide to some 750,000 borrowers.  Individual homeowners should receive on average $1,500 to $2,000, says Ted Gayer, a senior fellow with the Brookings Institution.


  • Over the next 30 to 60 days, settlement negotiators will be selecting an administrator to handle the logistics of the settlement and monitor compliance.
  • Over the next six to nine months, the settlement administrator, attorneys general and the mortgage servicers will work to identify homeowners eligible for the immediate cash payments, principal reductions and refinancing. Those eligible will receive letters.
  • This settlement will be executed over the next three years.


For loan modifications and refinance options, borrowers may be contacted directly by one of the five participating mortgage servicers. Keeping in mind the timeline above, you may contact the banks directly if you need additional information:

The settlement establishes a fund of $20 billion to help struggling homeowners, including $17 billion to reduce the mortgage balances of homeowners who currently owe more than their houses are worth. Iowa Attorney General Tom Miller, one of the architects of the settlement, says the fund may result in up to $35 billion in reduced principal because officials overseeing the fund will bargain with banks to pay less than full value to reduce mortgage debt owed by distressed homeowners.

Even so, if your mortgage is owned by Fannie Mae or Freddie Mac, you may be out of luck. The funds won’t cover homeowners with mortgages held by these entities.

“The big news here is principal reduction,” Gayer says. “But in the end, it’s not going to end up being that substantial.”

Loans owned by Fannie Mae or Freddie Mac are not impacted by this settlement.  You may visit the following websites to learn if your loan is owned by either Fannie Mae or Freddie Mac:

These sites will also include links to information about mortgage and foreclosure programs you may be eligible to access.  You may also call 1-888-995-HOPE (4673)

For borrowers who lost their home to foreclosure between Jan. 1, 2008 and Dec. 31, 2011, a settlement administrator designated by the attorneys general will send claim forms to persons eligible for cash restitution.

If you believe you are eligible for relief under this settlement but are concerned you will be difficult to locate, please contact your Attorney General’s Office. They will collect and forward your information to the appropriate person to ensure you are contacted if you are eligible.

For more info and FAQ on the $25 Billion Mortgage Settlement, click here.

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