On February 9, Attorney General Kamala D. Harris announced that California secured up to $18 billion for its distressed homeowners as part of a $25 billion national multistate settlement with the country’s five largest loan servicers. More than $12 billion will be used to offer short sales or write down loans over the next three years for about 250,000 underwater homeowners in California, according to the attorney general. Relief will go to areas hardest hit by the foreclosure crisis within the first year of the settlement.

Although the actual settlement has not yet been released, the attorney general has stated that other financial benefits for California include $849 million for refinancing 28,000 borrowers who are underwater but current on their payments; $279 million restitution for 140,000 homeowners who were foreclosed upon between 2008 and 2011; $1.1 billion for unemployed homeowners, transitional assistance, and repairing blight; $3.5 billion to extinguish unpaid loans that remain after foreclosure for 32,000 homeowners; and $430 million to the state attorney general’s office for costs and fees. As part of a California guarantee, if the lenders fail to reduce principal balances by a minimum of $12 billion, they will be required to pay fines up to $800 million to the state.

The loans involved in this settlement are those owned or serviced by Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial Inc. The settlement releases the five named lenders from certain federal and state claims pertaining to robo-signing and other foreclosure misconduct by the lenders. It does not affect any individual’s rights to bring legal action against a lender. It also does not apply to the majority of mortgage loans, which are those owned by Fannie Mae or Freddie Mac.

This mortgage settlement does not change any homeowner’s existing financial relationship with a settling lender. It does not relieve homeowners from any obligation. It does not require a settling lender to stop any foreclosure.

Homeowners seeking relief under the settlement agreement should contact their loan servicer or a HUD-approved housing counselor. More information including detailed FAQs is also available from the California Attorney General’s website, or visit the National Mortgage Settlement website.

The nation’s attorneys general, the Department of Justice, and HUD are “very close” to finalizing a legal settlement to settle ‘robosigning’ allegations levied against the nation’s dozen or so top ranked servicers, HUD secretary Shaun Donovan said Wednesday morning.

Speaking at U.S. Mayors Conference in Washington, Donovan said roughly one-million borrowers will receive some type of meaningful principal reduction on their mortgage debt.

“There also are a number of families that would get direct compensation for the harm that has been done to them,” the HUD secretary said.

He noted that “real principal reduction” could help the most needy remain in their homes.

He said the settlement should have a substantial impact on the housing market and allow lenders to loosen their underwriting standards so more homebuyers can obtain mortgage credit.

However, at press time no dollar amount had been attached to the settlement. Last year, an estimate of $25 billion was being offered up on the potential cost to top ranked servicers such as Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial.

Industry advisors say the $25 billion figure hit strong resistance in the servicing sector.

Servicers are hopeful that once a deal is finalized it will lift a cloud of uncertainty hanging over the industry since the phrase “robosigning” entered the national lexicon almost two years ago.

“Once this is out of the way the industry can get the lay of the land and move ahead with a lot of things – such as servicing sales and a bunch of things,” said one Washington counselor.

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Closing costs can increase the price of a home by as much as $10,000, sometimes more. Borrowers who are “cash-poor” can ask for assistance, or talk to their lender about a lender credit toward closing costs.

Making sense of the story

• Some lenders advertise that if borrowers agree to accept a mortgage interest rate from a quarter to a full percentage point higher than they would ordinarily qualify for, they can receive credit toward their closing costs.
  
  
• These mortgages are sometimes called no-closing-cost loans, though the term is misleading. The credit usually covers only fees charged by the mortgage broker or bank, like the loan origination fee, the underwriting expense, and the appraisal. That generally leaves title insurance, mortgage-recording taxes, insurance, and escrowed taxes to cover.The amount of credit depends on total closing costs and other loan details. Generally, for every one-eighth of a point increase in interest rate, borrowers receive a credit worth half a percentage point of the principal amount.
  
  
• While these mortgages can be helpful to some, borrowers should carefully review all the details. There are pluses and minuses to these loan types. A downside is the higher rate and monthly payment remain in place through the life of the loan.
  
  
• Doing a side-by-side comparison of loans with and without the credit can be helpful.

By Dian Hymer, 10/24/2011

Now more than ever, it’s important to protect yourself from unexpected surprises when you buy a home. The goal is to find out as much about the house as possible before closing.

Your offer should include an inspection contingency even if you’re making an offer in competition. The contingency wording should be broad enough for you to inspect whatever you deem necessary so that you are confident the home will satisfy your housing needs within a budget you can afford.

If the inspections reveal defects that can’t be corrected, or ones that can but the sellers won’t participate in the solution, you should have the option to withdraw from the contract and have your deposit returned.

Most buyers have a home inspected by a home and structural pest control (“termite”) inspector. Additional inspections recommended, such as for roof or drainage, should also be done.

Ideally, you want to know not only the severity of a defect, but how much it will cost to repair. It’s a good idea to ask for written reports and repair estimates, despite the additional cost. Written reports can be effective in negotiations with the sellers over inspection issues.

Even if you don’t intend to negotiate, written reports provide a record that will help you complete the needed repair work. It will also serve to inform the future buyers about the condition of the property when you bought it.

HOUSE HUNTING TIP: An item that is often overlooked during buyers’ inspections is the permit history on the house. It can be a hassle dealing with the city bureaucracy, and few buyers have time to go to the city planning department. Some even pay others to take care of this task. One way or the other, it should be done. Ignoring this detail can result in problems.

Several years ago, a buyer in the hills of Oakland, Calif., didn’t check the permit history when she bought. When she applied for a permit to do work on her house, she was denied because of outstanding permits taken out by the previous owner that hadn’t received final approval.

In order to obtain a permit, she had to have the property inspected by the city and do any work necessary to receive the final approval — all at her expense. This can cost thousands of dollars.

Recently a homebuyer in Oakland’s trendy Rockridge neighborhood obtained the permit history on the home she was buying. Two items became apparent that required further investigation.

One involved a remodel done by a past owner, not the current owner, for which a variance was granted. The permit received final approval. However, final permit approval was conditioned on the seller agreeing to record a notice of property use limitation on the title to the property. The preliminary title report on the property didn’t show a notice of property use limitation.

The title company searched the title record again, aware of the dates around which the notice should have been recorded, and found it. The title company issued an amended report correcting its mistake.

The permit search also indicated that there were fees owed against the property. The buyer was concerned because she planned to do work after closing and didn’t want to be stuck paying fees that she hadn’t incurred, especially having no idea how much was owed.

It turned out that the fees would not be charged to the new owner. One was for an application made by a past owner that had expired. The city had not performed any services. The other was from 1997, which was deemed to be too old to collect.

THE CLOSING: While you’re checking the permits, be sure to ask if any fees are owed. You may need to check directly with the cashier.

Dian Hymer, a real estate broker with more than 30 years’ experience, is a nationally syndicated real estate columnist and author of “House Hunting: The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide.”