Photo by Matthew N. Stroller, used under a Creative Commons license
Late Wednesday, the committee of attorneys general charged with brokering a financial settlement with the five major American banks accused of abusive or negligent banking practices reached an agreement that will require the financial institutions to pay a total of $25 billion dollars in reparations. The money will be distributed to approximately one million borrowers who lost their homes to foreclosure by the five banks, which include Bank of America Corp. (which will pay the largest share of the money at approximately $8.6 billion), JPMorgan Chase & Co., Wells Fargo & Co., Ally Financial and Citigroup.
The settlement releases the banks from civil government claims over improper foreclosures, robo-signing and other unethical and illegal tactics used in the foreclosure process and, perhaps most damning from the government's perspective, the mishandling of requests for loan modifications, even after help was orchestrated in 2008 as part of the bank bail-out bill to help struggling homeowners do just that. The banks may still be liable for a number of other government actions and individual litigation from investors over the ways home loans were packaged and sold as securities.
According to the Washington Post, the deal also brings to a close a separate federal investigation into Bank of America and Countrywide for inflating appraisals of loans from 2003 through most of 2009. Bank of America acquired Countrywide in 2008.
Forty-nine states and the District of Columbia are covered by the plan, which was in the works for over a year – Oklahoma would not agree to a settlement and will receive no money.
The biggest winners in the settlement were the biggest losers in the crisis. California will come out with the biggest share of the settlement at up to $18 billion; the state has more than 2 million underwater borrowers, whose homes are worth less than their mortgages.
Florida – where the National Association of Home Builders is holding the 2012 International Builders Show this week in Orlando and which has felt a deep and lasting impact to its housing market since the bottom fell out at the beginning of the crisis, and currently has the biggest inventory of foreclosed homes in the nation – will receive around $8.4 billion in relief, according to CBS Miami. Comments from the NAHB are expected shortly.
Seventeen billion dollars will be allocated to current homeowners whose properties are underwater but who are current on their mortgage payments, to help reduce their principal owed. The plan also allocates money direct to foreclosed homeowners, although there is little to no chance of them regaining seized properties, according to industry experts. The National Mortgage Settlement has prepared a FAQ for those who may benefit from the terms of the deal.
There is still work to be done, President Obama said in a press conference late Thursday although he praised the settlement as a first step. "We have reached a landmark settlement with the nation's largest banks that will speed relief to the hardest hit homeowners in some of the most abusive practices of the mortgage industry and begin to turn the page on an era of recklessness that has left so much damage in its wake."
See a timeline of key events in the settlement meetings here. (via Wall Street Journal)