By Derek Kravitz, The Associated Press
WASHINGTON - A landmark $25 billion settlement with
the nation's top mortgage lenders was hailed by government officials
Thursday as long-overdue relief for victims of foreclosure abuses. But
consumer advocates countered that far too few people will benefit.
The deal will reduce loans for only a fraction of those
Americans who owe more than their homes are worth. It will also send
checks to others who were improperly foreclosed upon. But the amounts
are modest.
It's unclear how much the deal will help struggling homeowners keep their homes or benefit those who have already lost theirs.
About 11 million households are underwater, meaning
they owe more than their homes are worth. The settlement would help 1
million of them.
"The total number of dollars is still small compared to
the value of the mortgages that are underwater," said Richard Green,
director of the University of Southern California's Lusk Center for Real
Estate.
Federal and state officials announced that 49 states
joined the settlement with five of the nation's biggest lenders.
Oklahoma struck a separate deal with the five banks. Government
officials are still negotiating with 14 other lenders to join.
The bulk of the money will go to California and
Florida, two of the states hardest hit by the housing crisis and the
ones with the most underwater homeowners. The two states stand to
receive roughly 75 per cent of the settlement funds.
Of the five major lenders, Bank of America will pay the
most to borrowers: nearly $8.6 billion. Wells Fargo will pay about $4.3
billion, JPMorgan Chase roughly $4.2 billion, Citigroup about $1.8
billion and Ally Financial $200 million. The banks will also pay state
and federal governments about $5.5 billion.
The settlement ends a painful chapter of the financial
crisis, when home values sank and millions edged toward foreclosure.
Many companies processed foreclosures without verifying documents. Some
employees signed papers they hadn't read or used fake signatures to
speed foreclosures — an action known as robo-signing.
President Barack Obama praised the settlement, saying
it will "speed relief to the hardest-hit homeowners, end 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."
The deal requires the banks to reduce loans for about 1
million households that are at risk of foreclosure. The lenders will
also send $2,000 each to about 750,000 Americans who were improperly
foreclosed upon from 2008 through 2011. The banks will have three years
to fulfil terms of the deal.
The states have agreed not to pursue civil charges over
the abuses covered by the settlement. Homeowners can still sue lenders
on their own, and federal and state authorities can still pursue
criminal charges.
The deal, reached after 16 months of contentious
negotiations, is subject to approval by a federal judge. It's the
biggest settlement involving a single industry since the $206 billion
multistate tobacco deal in 1998.
But for the many people who lost their homes to
foreclosure in the past two years, some of them improperly, a check for
$2,000 is small consolation.
"Two thousand dollars won't cover my moving costs," said Brian Duncan, who was evicted from his Tempe, Ariz., home last April.
Iowa Attorney General Tom Miller, who led the 50-state
talks, said the $2,000 checks represent the homeowners' best hope of
being reimbursed for any amount. They would have had trouble winning
settlements in court because of the time-consuming complexity of
litigation, Miller said.
Mike Heid, president of Wells Fargo Home Mortgage, said
the agreement "represents a very important step toward restoring
confidence in mortgage servicing and stability in the housing market."
Mark Vitner, a senior economist at Wells Fargo
Securities, said the settlement may help the housing market in the long
run. That's because it lets banks proceed with millions of foreclosures
that have been stalled. Many lenders had refrained from foreclosing on
homes as they awaited the settlement.
"We've got a lot of issues to work our way through in
the housing market," Vitner said. "What this settlement does is allow
that process to get started."
For the banks, the settlement comes mainly as a relief.
If each state had sued the lenders and won, the total settlements could
have run into the hundreds of billions. And all the lenders have set
aside adequate reserves.
"It's really a wash," said Paul Miller, bank analyst at
FBR Capital Markets. "A billion dollars is nothing for these large
trillion-dollar banks."
The bulk of the settlement will go toward reducing
underwater mortgages and refinancing some of them. But the banks had
realized they weren't going to collect the loans and had already written
down their value, Miller noted.
The deal requires banks to make foreclosure their last
resort. And they can't foreclose on a homeowner who is being considered
for a loan modification.
Still, the federal government has a dubious track
record of enforcing such rules. The Obama administration's signature
foreclosure-prevention program has failed to help more than half of
those who have applied to have their mortgage payments lowered
permanently. Many have complained that the program is a bureaucratic
nightmare.
Critics also note that the settlement will apply only
to privately held mortgages and not to those owned by mortgage giants
Fannie Mae and Freddie Mac. Banks own about half of all U.S. mortgages,
or roughly 30 million loans. Fannie and Freddie own the other half.
The deal is "another sad example of Wall Street not
being held accountable for fraud, perjury and crimes that created the
greatest economic crisis since the Great Depression," said Dennis
Kelleher, CEO of Better Markets, a group that advocates stricter
financial regulation. "The math does not add up in a massive
'robo-signing' scandal that is nothing more than systemic criminal
conduct."
The settlement also ends a separate 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.
