Personal Finance in the News: The Mortgage Settlement – Class Discussion and Teaching Video

Teaching Tip:  Jean Chatzky has a short (3-4 minute) video from the Today show on the new “Mortgage Settlement” that summarizes what took place.

In mid-February, 2012, the Justice Department announced a $25 billion settlement deal between 49 state attorneys general and the federal government and the five largest loan servicers:


Bank of America


JPMorgan Chase

Wells Fargo

This law suit was was brought as the result of charges of “robo-signings” on foreclosure documents – or as stated in the National Mortgage Settlement website the “agreement settles state and federal investigations finding that the country’s five largest loan servicers routinely signed foreclosure related documents outside the presence of a notary public and without really knowing whether the facts they contained were correct” – which is illegal.

The settlement will provide some relief for homeowners in danger of losing their homes, and it will also make it easier for current borrowers to refinance. The deal also seeks to reform mortgage-lending practices, minimizing the chances that these foreclosure problems will happen again.

$25 billion is a lot of money, so who benefits from this deal?  Three sets of borrows will get some relief: (1) homeowners needing loan modifications now – they get help refinancing at current, low interest rates, (2) homeowners who are current on their payments but owe more than the value of their home – they also get help refinancing at current, low interest rates, and (3) borrowers who have lost their homes due to foreclosure – they will receive cash payments with $1.5 billion distributed to 750,000 borrowers.

In Chapter 8 of Turning Money Into Wealth we take you through the many steps and considerations that are involved in making “the most expensive decision” you are likely to ever make by introducing you to the “Smart Buying Approach”.  Remember Principle 1: The Best Protection is Knowledge” – you will find that there is a lot to know when buying a house and the housing bubble crisis proves that this decision should not be made without doing your homework!

Discussion Questions:

  1. Do you think this settlement will increase or decrease the number of foreclosures next year?  Be prepared to defend your opinion in class.
  2. How much in the way of mortgage relief per borrower and how many borrowers might be involved? (Use the “Questions and Answers on the Mortgage Settlement” from USAToday to answer this question.)
  3. After watching the Today Show video were you surprised at how this settlement money will be divided?  Do you think the amount of money being proposed will really make a difference to the homeowner?  Why or why not. Write a 1 page response.
  4. Read through the NPR article “The Mortgage Deal: A Reality Check” – do you think the problem will be solved by this action? Why or why not.  Write a 1 page response.
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