Settlement between major banks and the federal government will help many underwater homeowners, but not everyone

Les Stukenberg/The Daily Courier<br>Kathi Dollarhide is close to short-selling her Yavapai Hills home. Dollarhide is hoping to avoid watching the house slip into foreclosure.

Les Stukenberg/The Daily Courier<br>Kathi Dollarhide is close to short-selling her Yavapai Hills home. Dollarhide is hoping to avoid watching the house slip into foreclosure.

Kathi Dollarhide simply wants her Yavapai Hills property to be somebody's home.

That goal appears within reach for Dollarhide, who expects to sell her former retirement home through the short-sale process.

Dollarhide said it's better to let the nearly 1,800-square-foot home go that way instead of watching it slide into foreclosure at the end of the month.

"I want to see someone living in the house. That's what it was built for," she said. "It was never an investment. It wasn't meant to sit there until the market turns around and some bank decides, 'OK, now we can sell it.'"

The short-sale option makes Dollarhide one of the lucky ones.

Late this past week, state and federal officials announced a $25 billion deal with Bank of America, JP Morgan Chase, Citibank, Wells Fargo, and Ally Financial to settle possible state charges over allegations of improper foreclosures.

Every state in the union, save for Oklahoma, is part of the settlement that sets aside at least $17 billion to lower the principal owed by homeowners who are both underwater and behind in their mortgage payments.

A CNNMoney.com story explained that the settlement calls for principal reduction for as many as 1 million homeowners.

Another 750,000 underwater homeowners will have the option to refinance their existing loans at a lower interest rate as long as they are current on their mortgage payments.

Those homeowners won't get a cut in principal, but the lower rates should help reduce their mortgage payments.

Another $3 billion is set aside to cover the reduced interest payments that go to the banks after refinancing.

The five banks will pay $5 billion to the 49 states, with some of that money going to foreclosed homeowners.

The Federal Reserve announced that it has an agreement with the banks to pay more than $766 million in penalties for robo-signing - in which lenders quickly signed off on foreclosure documents like affidavits without the required due diligence - and taking homes without proper paperwork.

Arizona homeowners who lost their homes to foreclosure between January 2008 and December 2010 will get a piece of a $1.6 billion pot if they meet certain criteria.

They could get up to $2,000 each, and accepting that money does not prohibit them from suing the bank for damages, according to the story.

Loans that Fannie Mae and Freddie Mac backed are not part of the settlement, and that's one of the hitches that ProPublica sees as a problem with the deal.

The nonprofit investigative journalism site's story on the topic explains that many homeowners who owe more on their homes than they're worth won't qualify, thanks to Fannie Mae and Freddie Mac.

The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, works to maximize their profits.

Edward DeMarco, the head of the agency, said in the story that allowing principal reduction translates into a huge loss for Fannie and Freddie - and, eventually, taxpayers.

Fannie and Freddie don't deal directly with borrowers or service mortgages, but they do guarantee or own about half of the mortgages in the nation and have more than 3 million of the 11 million underwater mortgages.

Reducing the amount owed on a loan would create losses for Fannie and Freddie, according to the story.

At least one economist sees some positives in the settlement.

Marshall Vest, director of the Economic and Business Research Center at the Eller College of Management at the University of Arizona, believes the settlement will help some homeowners.

"I think this is a policy that is actually going to do some good," he said. "It would be nice if it were a little bigger because it's still going to leave quite a few who are struggling to stay in their homes without help."

Vest said the settlement will help keep people in their homes rather than have to walk away from their properties.

But Vest agrees with the ProPublica argument that the settlement won't help millions of homeowners.

"There's still a lot of people who won't get help," he said. "The amount of dollars just aren't big enough to help and, of course, not everybody would qualify."