Banks Agree to $25 Billion Foreclosure Settlement

The long-awaited deal aims to help more than 1 million Americans

   
Banks Agree to $25 Billion Foreclosure Settlement

After months of intense negotiations, 49 states and five of the country’s biggest banks have agreed to a massive settlement – to the tune of $25 billion – to settle a range of charges related to mortgage foreclosure abuses in the wake of the busted housing bubble. The one holdout, Oklahoma, made a separate deal.

The five banks are Ally Financial (formerly GMAC), Bank of America (NYSE:BAC), Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC). Said U.S. Attorney General Eric H. Holder Jr. in a released statement: “With this settlement, we recover precious taxpayer resources, fix a broken system and lay a groundwork for a better future.”

The deal gives the five banks three years to make good on the agreement, which involves reducing loan principal amounts for about 1 million households at risk of foreclosure. In addition, the banks owe $2,000 to each of the roughly 750,000 Americans whose mortgages were improperly foreclosed.

The charges revolve around shoddy processing of foreclosure cases, most notably the practice – now infamous – known as robo-signing. That involved unauthorized personnel signing off on documents as being accurate and up-to-date, often without ever looking at the paperwork.  This allowed the lenders and their affiliates to process hundreds of foreclosure cases a day, no matter how complicated the legal and financial underpinnings may have been.

In return for lowering the loan amounts and cash payments, the banks get something they really wanted as well: immunity from further civil charges regarding these abuses. However, as the Associated Press points out, “Homeowners can still sue lenders in civil court on their own, and federal and state authorities can pursue criminal charges.”

While the banks have finally put this dark cloud behind them, they’re hardly in the clear altogether when it comes to mortgage-related liabilities.

Today, The Wall Street Journal reported that federal regulators are set to warn several major banks that the government is intends to sue them over mortgage-backed security abuses. “ The move would mark a stepped-up regulatory effort to hold Wall Street accountable for its sale of bonds linked to subprime mortgages in 2007 and 2008. At issue is whether the banks misrepresented the poor quality of loan pools they bundled and sold to investors,” wrote the Journal.

The banks at risk of being sued are said to be Ally, BofA, Citigroup, Deutsche Bank (NYSE:DB) and Goldman Sachs (NYSE:GS).


Article printed from InvestorPlace Media, http://investorplace.com/2012/02/banks-agree-to-25-billion-foreclosure-settlement/.

©2014 InvestorPlace Media, LLC

Comments are currently unavailable. Please check back soon.