Mortgage Settlement Will Help Few 'Responsible' Homeowners

SACRAMENTO (CBS13) -- The multi-billion dollar settlement between the attorneys general of a number of states and major banks will only help a small fraction of Sacramento-area homeowners who are underwater on their mortgages.

The landmark settlement with Ally/GMAC, Bank of America, Citi Bank, Chase, and Wells Fargo will result in $18 billion in help for homeowners across California, including $12 billion for approximately 250,000 homeowners who are behind on their payments and owe more than their home is worth, according to California Attorney General Kamala Harris.

Only about $849 million will be allocated for 28,000 homeowners who are current on their mortgage payments but still owe more than their home is worth, helping fewer than two percent of responsible homeowners.

Harris said she obtained separate enforceable guarantees to make sure the banks would honor their commitments by certain deadlines. Penalties for violating the agreement could include paying the state hundreds of millions of dollars. Harris also announced the appointment of a California monitor to help ensure the terms of the settlement are enforced.

Though she gave no specifics, Harris also said she planned to push for similar reductions for the 60 percent of homeowners whose loans are owned by Fannie Mae and Freddie Mac.

Drexell University economy professor Ramya Ghosh said the $18 billion sounds like a colossal number, but actually pales in comparison to the trillions lost in the housing market.

"I don't believe it will have a major impact on the housing market recovery or overall impact on the regional economy," Ghosh said. "I believe it's more of a slap on the wrist for banks."

Banks have not released guidelines on which homeowners qualify for aid.