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Banks to pay $25B for mortgage abuses

Posted February 8, 2012
Updated February 9, 2012

— Federal officials say the five largest mortgage lenders have reached a $25 billion settlement with 49 states over foreclosure abuses that took place after the housing bubble burst. They will have three years to fulfill the terms of the landmark deal announced Thursday.

The deal 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 will pay $1 billion to settle that federal probe.

Oklahoma is the lone holdout and will receive no money. 

Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial will pay to reimburse American homeowners and overhaul their industry.

North Carolina Commissioner of Banks Joe Smith has been appointed as the independent monitor to ensure that banks uphold the agreement nationwide.

North Carolina homeowners will received $338 million in the settlement, Attorney General Roy Cooper said. About one-tenth of that total will be paid to foreclosure victims, while $179.5 million will help reduce the principal on loans and provide other assistance to homeowners at risk of default.

Another $61.5 million of North Carolina's settlement will help homeowners who are "underwater" – they owe more on their mortgages than their homes are worth – refinance their loans at lower interest rates. The state will use the remaining $63.7 million to provide housing counselors, legal help and financial fraud detection.

“This agreement is about helping homeowners who tried to make good but were wronged,” Cooper said in a statement. “Just as important, it looks forward by establishing a clear set of rules to make sure foreclosures are done correctly and fairly.”

The nationwide settlement stems from abuses that occurred after the housing bubble burst. Many companies that process foreclosures failed to verify documents. Some employees signed papers they hadn't read or used fake signatures to speed foreclosures — an action known as robo-signing.

The deal would be the biggest involving a single industry since a 1998 multistate tobacco deal. It would force the five largest mortgage lenders to reduce loans for about 1 million households. The reduced loans would benefit homeowners who are behind on their payments and owe more than their homes are worth.

In addition, another 750,000 Americans – about half of the households who might be eligible for assistance under the deal – would likely receive checks for about $1,800 each.

The banks and U.S. state attorneys general agreed to the deal late Wednesday after 16 months of contentious negotiations.

New York and California came on board late Wednesday, according to a person close to the negotiations. The source was not authorized to disclose the agreement before Thursday's announcement.

California has more than 2 million underwater borrowers. New York has some 118,000 homeowners who are underwater.

The settlement ends a painful chapter that emerged from the financial crisis, when home values sank and millions edged toward foreclosure. In addition to the payments and mortgage write-downs, the deal promises to reshape long-standing mortgage lending guidelines. It will make it easier for those at risk of foreclosure to make their payments and keep their homes.

“Some foreclosures have to happen, but they must be done correctly and fairly,” Cooper said. “While this should have been the standard all along, our investigation has shown that it wasn’t, and it might never have been without this settlement.”

Those who lost their homes to foreclosure are unlikely to get their homes back or benefit much financially from the settlement.

The settlement would apply only to privately held mortgages issued from 2008 through 2011. Banks own about half of all U.S. mortgages — roughly 30 million loans.

Some critics say the proposed deal doesn't go far enough. They have argued for a thorough investigation of potentially illegal foreclosure practices before a settlement is hammered out.

Under the deal:

. $17 billion will go toward reducing the principal that struggling homeowners owe on their mortgages.

. $5 billion will be placed in a reserve account for various state and federal programs; a portion of that money will cover the $1,800 checks sent to those homeowners affected by the deceptive practices.

. About $3 billion will help homeowners refinance at 5.25 percent.

___

Associated Press Writer Michael Virtanen contributed from Albany, NY to this report.

187 Comments

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  • fayncmike Feb 13, 2012

    "Banks to pay $25B for mortgage abuses"

    EXCELLENT, put the crooks feet to the fire!

  • jeffjohnson123 Feb 10, 2012

    So, how is this going to help my family.
    Our mother passed away a couple of years ago.
    Our inheritance (farm) has fallen in value and we're having trouble selling.
    Tell me how this settlement is going to help us in our situation caused by this fiasco.
    I'll tell you how. It won't. I don't expect it to either.
    Life is a risk. Nature has been at this far longer than our government has. The strong survive. Even our youth are taught 'be prepared'.
    The arrogant, racist, simple minded, immoral 'Left' need to think long and hard about their future, about ALL of our futures. Given the course we are on, revolution is inevitable. And there is little change the 'left' would win that battle.

  • lumberman Feb 10, 2012

    Once again the person that has done and met all their obligations get nothing. No reduction in interest rates or principal. No special treatment. It just one more reason not to be a responsible citizen. Do not work get free housing, free food, free Obama phone, free medical and dental. Why would any one want to work here in America. Get on the sysytem continue vote democrats in to office live the good life.

  • trotter2047 Feb 10, 2012

    I understand the "victims" will be receiving 2000 dollars.. how "nice" that the government is taking such good care of THEMSELVES.. and when that money runs out... who has to pay their saleries??

  • muggs Feb 9, 2012

    Adolf, Good question my opinion would be because we standby and take it,sort of like living under a dictatorship,actually it is becoming more profitable to be poor,vote for those who will keep a roof over your head and food on the table with medical insurance and they will be sure to find the means through the work of others to insure your well being,sad but true,pick any of the areas that are on the system and you will see them sitting on the porch everyday waiting for the mailman.

  • DontLikeTheSocialistObama Feb 9, 2012

    So nice for the government to reward the irresponsible.

    What about those of us who got a mortgage that we could afford along with making the monthly payments.

    Nobody ever rewards the responsible.

  • DontLikeTheSocialistObama Feb 9, 2012

    It's nice that they are rewarding those who bought too much house and then cashed equity out of the house like it was an atm machine.

    People need to be responsible for their actions and looking to blame their actions on the evil banks.

  • muggs Feb 9, 2012

    As usual this is not all real clear,the government is making these banks reimburse former homeowners,some will be set aside for reducing the principal for struggling homeowners,and some will go into the various state and federal programs but no individuals will be held criminally accountable or charged with any type fraud because that is really what this is all about,homebuyers telling the mortage company they have the means to pay and the loan holders not investigating enough to see if that would be possible,yet the class of us who have held up to their end of the bargain will receive nothing,just does not seem to be making much sense.

  • GovReform Feb 9, 2012

    The Banking Act of 1933, was a law that established the FDIC in the US and introduced banking reforms, some of which were designed to control speculation. It is most commonly known as the Glass–Steagall Act, after its legislative sponsors, Senator Carter Glass (D–Va.) and Congressman Henry B. Steagall (D–Ala.). Some provisions of the Act, such as regulation provisions that prohibit a bank holding company from owning other financial companies were repealed on November 12, 1999, by the Gramm–Leach–Bliley Act, named after its co-sponsors Phil Gramm (R, Texas), Rep. Jim Leach (R, Iowa), and Rep. Thomas J. Bliley, Jr. (R, Virginia).

    The repeal of provisions of the Glass–Steagall Act, effectively removed the separation that previously existed between investment banking which issued securities and commercial banks which accepted deposits. The deregulation also removed conflict of interest prohibitions between investment bankers serving as officers of commercial banks.

  • Adolf Feb 9, 2012

    Why does the Amerikanish government allways helps the stupid people. Why not help the people who live within their means and have been paying their mortgage???

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