$26 billion agreement reached to aid underwater, foreclosed homeowners
It's a significant settlement, given the numbers of homeowners involved and the dollar amount. But it will have minimal impact on the housing sector.
Government officials have finalized an agreement worth as much as $26 billion with five major banks, capping a yearlong push to settle federal and state probes of alleged foreclosure abuses by lenders.
The deal represents the largest government-industry settlement since a multistate deal with the tobacco industry in 1998.
The agreement covers five banks: Ally Financial Inc., Bank of America Corp.,Citigroup Inc., J.P. Morgan Chase & Co., and Wells Fargo & Co. Together, the five handle payments on 55% of all outstanding home loans, or about 27 million mortgages, according to Inside Mortgage Finance.
Federal and state officials planned to announce the settlement Thursday morning in Washington after putting the finishing touches on the deal following a marathon negotiating session that ended after midnight Thursday morning.
The agreement will include at least 49 states, and officials were finalizing a separate accord with one remaining holdout, Oklahoma.
The Obama administration made a full-court press over the past four days to secure the support of key state attorneys general, including those from Florida, California and New York. All three states are expected to be part of the announcement, people familiar with the situation said.
Representatives of the banks declined to comment.
The settlement will rightly penalize those banks that took shortcuts in order to deal with the massive number of foreclosures at the time. Forging documents, or not following proper procedures no doubt affected tens of thousands of homeowners who shouldn't have been kicked out of their houses, or were denied due process in the foreclosure action.
But tens of thousands more deserve to have been foreclosed on. They were hopelessly behind in their loans, and were making no effort to pay the money back. The image of evil banks ruthlessly taking people's houses away is a liberal myth. Banks are always willing to work with homeowners, to go the extra mile to keep them in their homes - and, not coincidentally, maintain a viable loan account. Only if the homeowner blows the bank off, or the situation becomes hopeless does the bank then begin foreclosure proceedings.
That is almost always the case. But the crush of delinquencies caused some banks to make a concious decision to violate their own rules as well as skirt the law in order to get some of the bad loans off their books.
This settlement won't significantly affect the housing crisis. But it will give some relief to some homeowners.