What the JPMorgan settlement means to homeowners

(MoneyWatch) A whopping $4 billion in the record $13 billion mortgage settlement with JPMorgan Chase (JPM) is earmarked to provide relief to homeowners harmed by the financial giant's misconduct, along with Bear Stearns and Washington Mutual.

How will this relief be doled out, and how might it affect you? Here are some answers.

Who is likely to be affected by the settlement?

Anyone who secured a mortgage from Washington Mutual, JPMorgan or Bear Stearns prior to Jan. 1, 2009. In addition, people who live in economically troubled areas may find it easier to get new mortgages from JPMorgan thanks to a provision in the settlement that calls for "targeted originations" and for the bank to take steps to reduce urban blight.

If I have a mortgage with one of the affected companies, what form will my relief take?

That depends on the problem. Although significant progress has been made in restructuring high-rate mortgages through the Home Affordable Modification and Home Affordable Refinance programs, roughly 20 percent of homeowners seeking foreclosure relief are grappling with loan rates of 8 percent or more. That's more than 3 percentage points above the market rate.

In some cases, the relief is likely to simply bring loan rates down to current market rates, which would have a dramatic impact on the cost of these high-rate mortgages. For instance, a homeowner with a 30-year, $250,000 fixed-rate loan at 8 percent would pay $1,834 per month. However, if the bank refinanced the loan to current market rates of 4.5 percent, the payment would drop by nearly $600 a month to $1,267.

Targeted relief will also come in the form of cash help. Also, JPMorgan will provide a waiver of closing costs or up to $10,000 in credit for the purchase of a new home to credit worthy borrowers in qualifying hard-hit areas.

I haven't been able to refinance because my house is underwater. Can JPMorgan reduce my loan balance?

Yes. The settlement also suggests that JPMorgan may reduce some borrowers' loan balances. If this is the factor that has kept your mortgage rate high, a reduced balance could have an even more dramatic impact on your payment.

The monthly payment on a $200,000 loan (assuming that $50,000 is cut off the top thanks to the settlement) would be just $1,013 per month, based on a 4.5 percent rate and a 30-year mortgage.

Who do I contact to obtain this relief?

An independent monitor will be appointed to ensure that JPMorgan lives up to its end of the deal. That person will be Joseph Smith, the same monitor who oversaw the National Mortgage Settlement, which provided cash refunds to borrowers who already suffered through foreclosures. Any money left unspent by Dec. 31, 2017, would be donated to NeighborWorks America, a nonprofit organization that provides foreclosure counseling services through 1,700 affiliates around the country.

That makes NeighborWorks, which is already providing help to troubled homeowners, a great place to start. The organization was the recipient of a national grant to provide housing counseling, and it provides that service through a variety of nonprofit community groups that have received specialized training. These counselors can walk through your finances and determine what type of relief is called for and whether it will solve your housing woes -- regardless of whether or not they were caused by JP Morgan or another lender. To find a counselor near you, go to findaforeclosurecounselor.org

What will the "targeted origination" program include?

It's likely to mean that if you want to buy a home in a depressed market where the comparable home prices are depressed by foreclosures and short-sales, the bank may waive its normal underwriting guidelines related to those sales. That would make securing a mortgage comparative easier.

What if I already lost my home -- does this settlement give me any chance of recovering my losses?

It doesn't appear to. However, stay tuned. Once the independent monitor is named, you may be able to pose your question to that organization to be sure. We'll keep you updated when more details are released.

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