Government Nears Mortgage Settlement Over Major Banks’ Foreclosure Practices
The nation’s five largest mortgage lenders have agreed to overhaul their industry after deceptive foreclosure practices drove many Americans out of their homes.
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Bank of America (NYSE:BAC), JPMorgan (NYSE:JPM), Wells Fargo (NYSE:WFC), Citibank (NYSE:C), and Ally Financial (NYSE:ALLY-B) will also have to pay as much as $25 billion as part of the settlement, which will be doled out to eligible homeowners.
A draft of the settlement, which could reshape long-standing mortgage lending guidelines, making it easier for those at risk of foreclosure to restructure their loans, has been sent to state officials for review. Under the terms of the draft, roughly 1 million Americans could see the size of their mortgage reduced.
The agreement, which could be adopted within weeks, according to two officials briefed on the discussions between banks and state attorneys general, would put an end to practices known collectively as “robo-signing” that forced millions of Americans out of their homes since the housing bubble burst.
The deal is more than a year in the making, but some say it doesn’t go far enough, arguing that the government should more thoroughly investigate potentially illegal foreclosure practices before hammering out a binding settlement.
“Wall Street again is trying to pass the buck. Instead of criminal prosecutions, we’re talking about something that’s not more than a slap on the wrist,” said Senator Sherrod Brown (D-Ohio).
The settlement would apply only to privately-held mortgages issued between 2008 and 2011, not to those held by now government-controlled Fannie Mae or Freddie, which own about half of all U.S. mortgages — roughly 31 million.
Some states have disagreed over what terms offered to the banks under the settlement. New York, Delaware, Nevada, and Massachusets have argued that banks should not be protected from future civil liability. The deal will not fully release banks from future criminal lawsuits by individual states.
As part of the settlement, about 1 million homeowners may be eligible to get the principal amount of their mortgages written down by an average of $20,000. Seventeen-billion dollars of the settlement would go toward reducing the principals, while $5 billion would be placed in a reserve account for various state and federal programs, with a portion of that money going to cover $1,8000 checks to be sent to homeowners affected by deceptive practices. About $3 billion would be used to help homeowners refinance at 5.25 percent.
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