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Banks Receive a $308 Billion "Gift" on Home Equity Loans

While struggling homeowners everywhere are scrambling to benefit from the multi-billion dollar settlement announced earlier this month, four of the powerhouse banks are enjoying an additional bonus from the settlement. The five banks that service almost half the nation's mortgages, Bank of America Corp., Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial, will receive protection for billions of dollars in home-equity loans they hold.

According to Bloomberg reports early this morning, these banks will share losses they suffered on their junior liens and get credit toward the money they would be spending in the settlement. While the details of this have not been made public, an Obama official indicated that while banks will receive a credit for writing down home equity loans, they won't receive as much as they will for reducing primary mortgage balances. The hope is that more loans will be modified with this loss-sharing program by making the banks suffer losses on their junior liens on an equal basis as first-lien investors. One of the hurdles in obtaining modifications has been these big banks trying to protect their second liens. If they suffer losses on an equal basis as first-lien holders, loan modifications may more easily occur.

Critics of the program argue that the banks got away with a cheap resolution and that this will cause higher rates for primary mortgages in the way of risk premiums being added. The feeling is that first lien mortgages will become more expensive because they are no longer treated as a priority to second lien holder.

As the details of this program have not been made public, please continue to visit our blogs to read up-to-date information. The attorneys at Law Office of Tauna R. Bogle will keep you updated and can answer questions you have about the foreclosure process and current trends.

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