U.S. consumers who suffered through the mortgage crisis -- and even those who experienced losses from Superstorm Sandy -- could benefit from the record $13 billion settlement with JPMorgan Chase (JPM). But they shouldn't expect a windfall, consumer advocates say.
"Consumers will not see relief in the ways they traditionally do when companies settle complaints about wrongdoing," said John Breyault, vice president of public policy, telecommunications and fraud at the National Consumers League. "Consumer relief from this settlement will instead include principal forgiveness, loan modifications and efforts to reduce blight."
Customers of JPMorgan, Bear Stearns and Washington Mutual prior to Jan. 1, 2009 could be eligible for a reduction to the principal of their mortgage loans or receive refinancing opportunities for which they might not otherwise have qualified. And those who are facing foreclosure could get some much-needed opportunities.
The settlement calls for a minimum of $1.2 billion in mortgage principal reduction. In addition, customers in low- to moderate-income areas and those who lived in a federal disaster area between Oct. 1, 2012 and Nov. 19 will qualify for up to $10,000 in credits toward purchase loans.
An independent monitor will be appointed to oversee the distribution of the settlement. Breyault said it is vital that the monitor has authority to see the money is properly spent.
Consumers who received or had mortgages serviced by JPMorgan and the related firms should talk to the bank, a housing counselor or federal regulators to see whether they could be beneficiaries of this settlement, said Ira Rheingold, executive director of the National Association of Consumer Advocates.
"Don't wait for the bank to do something," Rheingold said. "You should be aggressive and proactive."
And, Rheingold notes, other settlements related to the housing crisis have made additional consumer assistance available. "If you feel like you're under water and you need help, you should pursue it."
At least $4 billion in funds from the settlement are earmarked to provide assistance in areas that were hardest hit during the foreclosure crisis, such as Detroit. Those funds could be used to acquire abandoned properties and find alternative uses for the land, reducing blight and helping to prop up other urban homeowners, Rheingold said.
"It's sort of a recognition of the economic devastation they left in the wake of their bad practices -- and they have to pay for it," he added.
In addition, cash will be available to help fund new loans and pay for services in areas that have been hurt most.
The plan to deploy settlement money in certain states is more defined. New York, one of five states that also settled with JPMorgan, will receive about $1 billion. Of that, $613 million will be used to provide housing counseling and legal services for New York residents who were impacted by Sandy, New York Attorney General Eric Schneiderman said.
Other states, including Illinois and California, will receive shares of the settlement to offset losses suffered by their state pension funds.