After months of painstaking talks, government authorities and five of the nation’s biggest banks have agreed to a $26 billion settlement that could provide relief to nearly two million current and former American homeowners harmed by the bursting of the housing bubble, state and federal officials said in Washington on Thursday. Enlarge This Image Left, Mario Anzuoni/Reuters; Fred R. Conrad/The New York Times The attorney general of California, Kamala Harris, left, and New York's attorney general, Eric Schneiderman. Multimedia Graphic Help for Some Homeowners
It is part of a broad national settlement aimed at halting the housing market’s downward slide and holding the banks accountable for foreclosure abuses.
Under the plan, federal officials said Thursday, about $5 billion will go in cash payments to states and federal authorities, $17 billion will be earmarked for homeowner relief, roughly $3 billion will go for refinancing and a final $1 billion will go to the Federal Housing Administration. If nine other major servicers join the pact, a possibility that is now under discussion with the government, the total package could rise to $30 billion.
Because of the complicated formula being used to distribute the money, federal officials say the ultimate benefits provided to homeowners could equal a larger sum — $45 billion in the event all 14 major servicers participate. There are additional incentives for banks to distribute the money in the next 12 months.
More than just an attempt to aid consumers and stabilize the housing market, administration officials cast the settlement as an effort to finally hold banks accountable for their misdeeds, more than three years after the mortgage meltdown brought on a full-scale financial crisis.
The deal announced Thursday is about “righting the wrongs that led to the housing market collapse,” said Eric Holder, the United States attorney general. “With this settlement, we recover precious taxpayer resources, fix a broken system and lay a groundwork for a better future.”
Despite the billions earmarked in the accord, the aid will help a relatively small portion of the millions of borrowers who are delinquent and facing foreclosure. The success could depend in part on how effectively the program is carried out because earlier efforts by Washington aimed at troubled borrowers helped far fewer than had been expected.
Still, the agreement is the broadest effort yet to help borrowers owing more than their houses are worth, with roughly one million expected to have their mortgage debt reduced by lenders or able to refinance their homes at lower rates. Another 750,000 people who lost their homes to foreclosure from January 2008 to the end of 2011 will receive checks for about $2,000. The aid is to be distributed over three years.
The deal grew out of an investigation into mortgage servicing by all 50 state attorneys general that was introduced in the fall of 2010 amid an uproar over revelations that banks evicted people with false or incomplete documentation.
In the 14 months since then, the scope of the accord has broadened from an examination of foreclosure abuses to a broad effort to lift the housing market out of its biggest slump since the Great Depression. Four million Americans have been foreclosed upon since the beginning of 2007, and the huge overhang of abandoned homes has swamped many regions, like California, Florida and Arizona.
Other multimillion-dollar settlements were announced on Thursday in connection with the years-long mortgage and foreclosure crisis:
— A mortgage servicing subsidiary of Bank of America Corp. agreed to settle Federal Trade Commission charges that it illegally assessed more than $36 million worth of fees against struggling homeowners, in violation of an earlier settlement with the F.T.C.
— Bank of America, Citigroup, JPMorgan Chase and Wells Fargo also agreed to pay a penalty of $394 million as part of a settlement over foreclosure abuses, the Office of the Comptroller of the Currency said.
In New York State, more than 46,000 borrowers will receive some form of benefit, with an estimated 21,000 expected to see what they owe reduced through a principal reduction, according to estimates by the Department of Housing and Urban Development.
The five mortgage servicers in the settlement — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — have largely set aside reserves for the expected cost of the accord and investors are likely to cheer its announcement because it removes one more legal worry for the industry, analysts said.
“I wouldn’t say it’s a panacea for the housing industry but it is good for the banks to get this behind them,” said Jason Goldberg, an analyst with Barclays.
Click for Full Text!
