The more we learn about the massive $26 billion foreclosure settlement between the five biggest mortgage lenders and the states' attorneys general, growing numbers of borrowers are realizing that the deal will do little, if anything, to help them out.

 

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Those pushing the settlement deal claim roughly 1 million homeowners who owe more on their homes than their homes are worth can expect to have their mortgage balances lowered through principal reductions, and another 750,000 will be able to refinance into loans with lower interest rates.

However, that's just a sliver of the 11 million homeowners who are currently underwater on their homes, and just a fraction of the 3.5 million people who have lost their homes to foreclosure over the past four years.

Here's the bad news for the vast majority of beleaguered homeowners. Principal reductions will only apply to certain borrowers whose mortgages are held by the five major lenders:  Bank of America,  CitiBank, Wells Fargo, J.P. Morgan Chase, and Ally Financial.

Borrowers with a mortgage held by Fannie Mae or Freddie Mac -- roughly half the market -- are out of luck.  Loans insured by the Federal Housing Administration are also not eligible.

For homeowners who bought responsibly and made their payments faithfully, the real inequity comes in the fact that their tax dollars are paying for government-funded programs to prevent foreclosures -- while irresponsible borrowers get benefits like the ones offered in the settlement.

So, as one Arizona homeowner put it, "...people who didn't over leverage their homes, who paid their mortgages on time, who didn't borrow more than they could afford, even if the bank said they could ... the people who had good common sense and have done the right thing, are left with all of this business loaded on their backs."

Another homeowner in Illinois put it more succinctly, and more to the point. "So, these people who are underwater get a break from the banks, and other hard working folks like us get screwed?"

Sadly, that's what it means.  Your tax dollars at work.

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