Feds gain foreclosure accord
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Housing and Urban Development Secretary Shaun Donovan, left, smiles as he listens to Colorado Attorney General John Suthers, right, speak Thursday during a news conference at the Justice Department in Washington, D.C., where a settlement regarding mortgage loan servicing and foreclosure abuse was announced.
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WASHINGTON -- The federal government's $25 billion settlement Thursday with banks over fraudulent foreclosure practices begins a long-promised reckoning with the financial industry over its role in the worst economic crisis since the Great Depression, officials said.
The deal represents the largest industry settlement since an accord with tobacco companies in 1998 and will force five of the nation's largest banks to overhaul their mortgage servicing practices and lower loan balances for many borrowers who owe more than their houses are worth.
Officials acknowledged that the final sum will reach only a fraction of homeowners across the country whose homes are collectively worth $750 billion less than what is owed on their mortgages. But they argued that it was a meaningful step in healing the housing market.
The settlement priority wasn't on punishing banks, officials said. Another wave of punishment is on its way, they vowed.
Thursday's settlement, which would require a judge's consent, won approval from 49 states. Oklahoma was the lone holdout.
Under terms of the deal, banks would have three years to complete principal writedowns, refinancings and other relief. It provides incentives for actions taken within the first 12 months, so the aid can get to homeowners sooner rather than later.
The settlement also includes about $17 billion for foreclosure-prevention measures, such as lowering the loan balance for borrowers who owe more than their homes are worth. Other provisions would provide for lowering interest rates for homeowners current on their loans. In addition, as many as 750,000 borrowers who lost their homes to foreclosure since 2008 would be eligible for payouts of about $2,000 each.
The five banks at the heart of the settlement are Wells Fargo, Bank of America, J.P. Morgan Chase, Ally Financial and Citigroup. Ultimately, the amount of aid to homeowners could reach $40 billion, officials said, adding that they hope other banks will soon sign similar pacts and adopt the new standards of the deal.
The deal was brought on by revelations that banks were using forged and shoddy paperwork to foreclose rapidly on struggling homeowners, a practice known as "robo-signing." Outrage over those practices led to 16 months of settlement talks between state and federal officials and five large banks.
First Published February 10, 2012 12:00 am
