Breaking News: Largest-Ever Housing Deal Will Help More Than 1 Million Homeowners
RISMedia reported today that after more than a year of negotiations, the
nation’s biggest banks, states attorneys general and federal officials have
announced the largest housing settlement ever—more than $26 billion—over
foreclosure practices. The deal is expected to offer relief to more than one
million U.S. homeowners who are having trouble paying their mortgages or have
lost their homes to foreclosure.
The states and federal authorities have
been in discussions for more than a year with banks over the “robo-signing”
crisis—the practice of assigning bank employees to rapidly approve numerous
foreclosures with only cursory glances at the glut of paperwork to determine if
all the documents are in order.
The settlement is with five big banks:
Bank of America Corp., J.P. Morgan Chase & Co., Citigroup Inc., Wells Fargo
& Co., and Ally Financial Inc., the company formerly known as GMAC.
Of the $26 billion, $17 billion must be spent toward direct relief to
borrowers, with a big chunk of that—60 percent—going toward principal
reductions, or the write-downs of mortgage debt, as well as other kinds of loan
modifications or assistance. According to reports, the amount must be spent
within three years, or banks will need to make cash payments to regulators.
Housing industry officials were quick to praise the settlement as a
positive step, but cautioned that it will not resolve all the industry’s
problems.
Under the terms of the settlement, $5 billion will go toward a
reserve account for state and federal programs and to individual homeowners
harmed by bank practices. Negotiators have said that about 750,000 people could
receive checks for about $1,500 to $2,000.
About $3 billion will go
toward helping borrowers who are current on their mortgages but have no equity
in their homes to refinance into new, lower-cost loans. The program will be
similar to an existing Obama administration program that seeks to help
underwater homeowners.
Two key states crucial to the
settlement—California and New York—had been holdouts to the deal amid
round-the-clock negotiations as late as Wednesday.
According to reports,
there are nine other financial institutions with mortgage servicers that are in
discussions with states and federal regulators, and if they are included, the
final settlement could increase by billions of dollars. If these other servicers
participate, the total settlement could rise to between $30 billion and $45
billion in housing relief, reports said.
The next step is for the
settlement to be filed as a judgment in federal court within a couple weeks. The
court will need to approve the judgment. After that, servicers will be obligated
to write a check and deposit some funds into an escrow trust that will
distribute cash to federal governments and states.
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