Banks in $25B deal to settle foreclosure abuses

Government officials have struck a $25 billion settlement with five of the nation's largest lenders to address mortgage-servicing and foreclosure abuses committed by the companies.

The agreement, which the U.S. Justice Department announced Thursday after more than 16 months of negotiations involving all 50 U.S. states, federal authorities and the banks, provides financial relief for homeowners and toughens standards for how financial firms service mortgage loans. Joining the deal are the country's largest mortgage servicers: Ally Financial, Bank of America (BAC), Citigroup (C), JPMorgan Chase (JPM), and Wells Fargo (WFC).

Under the terms of the deal, mortgage servicers must allocate $20 billion to various types of mortgage relief for borrowers. At least $10 billion of that total will go toward reducing the principal for borrowers who are behind, or at risk of defaulting on, their loans at the time of the settlement and who owe more on their mortgages that their homes are worth. A minimum of $3 billion will go toward helping homeowners who also are "underwater," but current on their loans, refinance at lower interest rates. Up to $7 billion will be allocated toward offering other forms of aid, including forbearance of principal for unemployed borrowers, "short sales," and financial assistance for homeowners whose homes are foreclosed. In addition, loan servicers must pay $4.25 billion to the states and $750 million to the federal government. 

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Those totals could grow if other servicers join the agreement, as is reportedly under discussion. Despite the financial assistance for borrowers, the relief may not come immediately. The settlement gives mortgage servicers three years to meet their obligations. As an incentive to move quickly to help struggling homeowners, the lenders must reach three-quarters of their targets for loan modifications, refinancing, and other relief within two years. Servicers that miss these target will be required to pay "substantial" additional cash amounts, according to the Justice Department.

U.S. Attorney General Eric Holder expressed confidence that the agreement would benefit borrowers. "It holds mortgage servicers accountable for abusive practices and requires them to commit more than $20 billion towards financial relief for consumers," he said in a press conference to discuss the pact. "As a result, struggling homeowners throughout the country will benefit from reduced principals and refinancing of their loans. The agreement also requires substantial changes in how servicers do business, which will help to ensure the abuses of the past are not repeated."

An independent monitor, North Carolina bank commissioner Joseph Smith Jr., will be charged with ensuring that banks comply with the settlement. Other federal programs to help homeowners avoid foreclosure, such as the Home Affordable Modification Program, have fallen far short of their goals, with critics blaming the government for failing to hold participating lenders accountable.

"Because this is only five banks, because there will be problems with compliance by the banks, because homeowners will still face wrongful foreclosure, I'm hopeful that this settlement will set the stage for further progress on national servicing standards," said Diane Thompson, an attorney at the National Consumer Law Center, in a email. "Enforcement is always tricky, and often plays out in foreclosure courtrooms."

But she said that the settlement represents progress because it sets tighter standards for the high fees that servicers charge homeowners, which often push borrowers into default, among other improvements over existing practices.

Questions also remain over how many people will benefit from the settlement. Roughly 20 percent of Americans with a mortgage owe more on their properties than they are worth. "The deal announced today is too small," said the Pico National Network, a grass-roots organization that deals with housing issues, in a statement. "It falls far short of providing real justice for homeowners and American families. The estimated $17 billion for principal reduction is a small drop in a big bucket in comparison to $700 billion in total negative equity."

For the banks, the agreement lifts a cloud over the financial industry that emerged in 2010 after the companies were found to have committed a range of mortgage abuses, including fabricating and falsifying foreclosure documents. The deal insulates the companies from state and federal prosecution over these "robo-signing" charges.

But states may pursue civil claims outside the scope of the deal, including claims that the banks improperly packaged mortgage securities. Homeowners and investors may file individual, institutional, or class-action cases. State attorneys general and federal agencies also may investigate other aspects of the mortgage crisis, including allegations of securities fraud. 

[LtSmily]

"A government large enough to give you everything you want is also large enough to take away everything you have"... but that was just some archaic white slave owner saying that so who cares.

I would have much more respect for President Obama if he would just come out and tell us that he hates the Constitution (of which he knows nothing) and he can override anything Congress does. This strong arming of banks, who I do not deal with anyway, is so thuggish, it seems we have the first Black and first rapper President all-in-one. We are all part of the twilight of Pax Americana, the only way to recovery is deep budget cuts, increased taxes, and increased interest rates, which will kill the economy and erode further the lack of trust in the Federal Government since they always find ways to irresponsibly spend any revenue they get their greedy little pawns on at any given time regardless of party. I get a chuckle when I hear die-hard politicos speak of this as some great occurrance for the "Middle Class" home-owner, since few home-owners will see any of this money. There will be a paltry sum thrown at home-owners paid for by future generations, just like the "popular" payroll tax cut (hint: no SS for you under 45). That $25B was spent before the ink was dry, and it ain't going to home-owners (unless they vote Democrat that is ;>)

[Martha12345]

The amount of money is peanuts and no one has been charged with a crime. So where is the justice ?

[44wonder]

What crime?? Expecting some one to make their loan payments...Martha if you have some extra money laying around I would like to borrow some cash..O yea don't expect me to repay you..

[sirmarion-2009]

Where are the corrupt politicans who pushed the banks into making loans to the people who could not afford them? Where is Fannie May and Freddie Mac they were as complicit as the rest?

[longtree-2009]

sounds like a bailout for people who bought more house than they could afford, a bailout for the greedy. people who did the right thing, bought within their means or less are being hosed. wonder if there has ever been a potus that was more bailout happy than obama?

[skeezix06]

And with this, the robosigner companies get a "get out of jail free" card.

[ahrats]

What about those of us who have paied their mortages regurlary but now the home is worth 60% of the buying price, how do we get relief? Are you telling me to stop paying my mortgage so I can qualify for this money?

[sirmarion-2009]

You really think any home owners are going to get any of this money? The way Obama is spending it has already been spent.

[JJ_in_tulsa]

These are the people who borrowed 120% more than there house was worth,, OUR government forced banks to do the loans (which almost all americans had lunches knowing this would fail, because, jeez even kermit the frog had a clue),, BUT Dodd was still in power and once his dumb idiot idea, which gave him millions of dollars, don't forget the millions, it was billions,, once that idea stopped, he just decided to make it the "problem of the people". Once Frank Dodds got
"caught " in this scheme, he had the option of bailing out.

[sandiegopete]

When they borrowed their homes were worth more. Housing values dropped greatly because they had been artifically inflated by banks who made more money the higher the value of the loan. The banks worked out a scheme where they would make money regardless of whether the mortgages defaulted.

[JJ_in_tulsa]

No one also reported on the fact that the "fees" are gonna be paid by the mortgage holders which is almost all pension and 401K holders. This isn't being paid by the banks, which it shouln't be since our government forced all these mortgages. THIs is being paid for by ALL YOU IDIOTS that save for retirement. Get a clue people... get a clue

[rightbehind]

They have robbed the entire country of almost a trillion dollars and they make a no go to jail pact for less than 25 billion dollars. They need to start dragging some of these hedge fund and derivative dealers out in leg irons.

[JJ_in_tulsa]

This is not being paid for by the banks,, you idiot, it is being paid for by the peoplr who hold the mortgage contracts, which is probably your 401k

[Chuck77474]

Blame, blame, blame... More of the same...

Fact: Banking Industry out of control, thanks to BOTH parties greed to pay back Big Business Who Put Them In Office.

Fact: Americans are normal, greedy people who will take what isn't regulated so they can't... Result: SOME, NOT ALL, people bought more house/land than they could afford.

Fact: Responsible Americans, because of the same "Representatives" watching out for them in Washington, (frigging joke), lost their houses due to job loss -- AND the most self-serving, corrupt and UNREGULATED banking industry in US history.

Fact: "Label Makers" are happy to quack about partisanship and let America slowly sink like the Titanic.

Fact: Greedy Americans still pi$$ and moan about loosing more house than they could afford.

Fact: Responsible Americans who lost their homes because of corrupt Banks or US Representative (Congress) pathetic lack of job performance take it bent over yet one more time.

Please, one more yahoo for your favorite "party" (oxymoron) and one more "bend over, America" for the 99% with no lube.

[IEtOut]

Let me guess. These funds will be made available to victims just like Obama promised the $20billion BP fund was supposed to be. What a joke!

[moretruthnow]

Well you obviously won't like what is done or care that it will benefit people who were harmed through no fault of their own.

[moretruthnow]

I know there were unscrupulous loan agencies who did encourage people toward risky loans, interest only loans, and five year loans with increasing payment amounts year by year. So I really do think reckless and greed was going into this process with no regulation and with no oversight. Think what you want and be as foolish as you want. Banks and loan agencies were not acting as saintly as you republicans want to believe.