History was made this morning when a settlement was announced between our nation’s states and some of the largest mortgage lenders. The deal, among the biggest in history, calls for $25 billion dollars in payments by lenders for foreclosure abuses. The agreement involves five lenders: Wells Fargo, Citigroup, JPMorgan Chase, Bank of America, and Ally Financial. Forty-nine states will receive funds from the settlement—Oklahoma being the only state who didn’t agree to the terms.
Under this landmark settlement, lenders will pay penalties and reimburse borrowers for wrongful foreclosures and their roles in creating underwater mortgages. In addition, the five lenders agree to reduce mortgages and revise lending guidelines. In return, the 49 states agree not to file civil charges against the banks (although homeowners can still file civil suits, and states can file criminal charges, if they choose) for their abuses.
The agreement will provide relief to homeowners by reducing approximately one million mortgages. Those who have experienced a wrongful foreclosure or one where improper documentation was used will receive a check for $2,000 within the next three years. It’s estimated that 750,000 homeowners will receive these checks; however, there is no provision for returning their homes to them.
The settlement comes as the result of many abuses, including robo-signing, by banks in the last five years. It also puts a halt into a previous investigation into claims that Bank of America and Countrywide purposely inflated loan appraisals.
Initial details of the settlement include:
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. Those owned by mortgage giants Fannie Mae and Freddie Mac are not covered by the deal.
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:
- The five lenders agree to pay $1.5 billion to nearly 750,000 homeowners who suffered unfair or improper home foreclosures. Each homeowner will receive $2,000 within the next three years.
- $3.5 billion will be paid directly to the 49 states who signed on.
- $10 billion will be used to reduce existing mortgages, making monthly payments affordable so homeowners can stay in their homes.
- $7 billion will be contributed to state homeowner programs.
- Approximately $3 billion will be used to refinance mortgage loans for homeowners who owe more than their home is worth (otherwise known as underwater mortgages).
New York and California were the last two states to join in the agreement, which took 16 months to complete. Lenders will face stiff penalties for violating any terms, as much as one million dollars for each violation, with repeat violations being penalized up to five million dollars.
While the settlement is unprecedented, it’s not enough to help those who have already lost their homes, but it’s a step in the right direction for homeowners who have become a victim of the housing crisis and the wrongdoings of these lenders that contributed to it.
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