The landmark $25 billion settlement reached by the federal government, 49 states and the nation’s five biggest banks will provide long-overdue relief for hundreds of thousands of homeowners who have been struggling to navigate the mortgage mess created by lenders. The wider impact for most homeowners, along with the housing market and economy, will be much more limited. The settlement takes a multipronged approach to try to unravel the aftermath of a housing market collapse that resulted in more than seven million foreclosures, created a legal morass for lenders and left a red tape nightmare for millions struggling to hang onto their homes. Some of those who lost their homes may be eligible for a small cash payment, while others who are struggling to hang on may see their monthly payments lowered substantially through reductions in interest rates or their principal balance. So if you’re one of the lucky homeowners reached by the program, the impact could be significant.

Over the next 30 to 60 days, state and federal officials say they will pick an administrator to handle the logistics and a monitor to track lenders’ compliance. It will take another six to nine months identify eligible homeowners and notify them by mail. Lenders have three years to complete loan modifications. If they come up short, unearned modification credits will be converted to a cash penalty paid to the government. State and federal officials say the settlement could eventually help as many as a million households. Roughly 750,000 borrowers who lost their homes to foreclosure between 2008 and 2011 will get a cash payment of about $2,000. But the vast majority of more than 11 million homeowners who owe more than their house is worth, along with six million who are in foreclosure or behind in their payments, won’t get help. That’s because the settlement applies only to loans held on the books of the five banks that agreed to settle. Loans held by government mortgage companies Fannie Mae and Freddie Mac, which account for more than half of U.S. residential mortgages, aren’t eligible. Nor are most loans that were sold off to private investors or are held by lenders who aren’t part of the settlement. (State and federal officials are negotiating with other lenders to try to expand the reach of the program. The deal won’t be finalized until a federal court judge signs off, which settlement negotiators say they expect in a few weeks.

via MSNBC