Federal officials announced a $25 billion settlement Thursday with the five largest mortgage lenders over foreclosure abuses — a deal that requires the banks to reduce some loans, send out checks to foreclosed Americans and refinance mortgages for underwater borrowers. Click below to read the rest of the story.
Attorney General Eric Holder said the deal would “hold mortgage servicers accountable for abusive practices.”
It is the biggest settlement involving a single industry since a 1998 multistate tobacco deal. Under the agreement, five major banks — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — will reduce loans for nearly 1 million households. They will also send checks of $2,000 to about 750,000 Americans who were improperly foreclosed upon. The banks will have three years to fulfill the terms of the deal.
All but one of the 50 states agreed to the deal. Oklahoma, the lone holdout, will receive no money.
The agreement requires the banks to commit a staggering amount of money toward changing loan terms. At least $10 billion will go toward reducing the principal for borrowers who are delinquent or underwater borrowers at risk of default. At least $3 billion will go toward refinancing. Other payments will go toward state governments, and the federal government, to “repay public funds lost as a result of servicer misconduct,” according to the Justice Department.
The conditions will be overseen by Joseph A. Smith Jr., North Carolina’s banking commissioner. Lenders that violate the deal could face $1 million penalties per violation and up to $5 million for repeat violators.
The settlement ends a painful chapter that emerged from the financial crisis, when home values sank and millions edged toward foreclosure. Many companies processed foreclosures without verifying documents. Some employees signed papers they hadn’t read or used fake signatures to speed foreclosures — an action known as robo-signing.
Under the deal, the 49 states have said they won’t pursue civil charges related to these types of abuses. Homeowners can still sue lenders in civil court on their own, and federal and state authorities can pursue criminal charges.
Bank of America will pay the most to borrowers as part of the deal — nearly $8.6 billion. Wells Fargo will pay about $4.3 billion, JPMorgan Chase will pay roughly $4.2 billion, Citigroup will pay about $1.8 billion and Ally Financial will pay $200 million. This does not include $5.5 billion in federal and state payments.
The deal also ends a separate investigation into Bank of America and Countrywide for inflating appraisals of loans from 2003 through most of 2009. Bank of America acquired Countrywide in 2008.
The banks and U.S. state attorneys general agreed to the deal late Wednesday after 16 months of contentious negotiations.
New York and California came on board late Wednesday. California has more than 2 million “underwater” borrowers, whose homes are worth less than their mortgages. New York has some 118,000 homeowners who are underwater.
In addition to the payments and mortgage write-downs, the deal promises to reshape long-standing mortgage lending guidelines. It will make it easier for those at risk of foreclosure to make their payments and keep their homes.
Those who lost their homes to foreclosure are unlikely to get their homes back or benefit much financially from the settlement.
The settlement would apply only to privately held mortgages issued from 2008 through 2011. Banks own about half of all U.S. mortgages — roughly 30 million loans.
Some critics say the proposed deal doesn’t go far enough. They have argued for a thorough investigation of potentially illegal foreclosure practices before a settlement is hammered out.
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