foreclosure crisis

Banks Agree to $26 Billion Settlement for Defrauding Homeowners [Updated]

New York and California, among the final holdouts in a multibillion-dollar settlement between five U.S. banks and states with homeowners victimized by fraudulent foreclosure practices, are reportedly poised to support a deal that may be announced as soon as Thursday. New York State attorney general Eric Schneiderman, along with a few other holdout states, had previously expressed concern that the deal was too lenient on banks for prior misdeeds. The five banks involved in the settlement are Wells Fargo, Bank of America, JPMorgan Chase, Ally Financial, and Citigroup. Through the agreement, about one million people will have their mortgage debt reduced or refinanced at lower rates, while an additional 750,000 people who lost their homes to foreclosures will receive about $2,000 in aid, distributed over three years, the New York Times reports.

A report by Bloomberg puts the overall value of the settlement at as much as $39 billion. States that had not yet signed on as of a February 6 deadline include New York, California, Florida, Nevada, Massachusetts, and Delaware. Schneiderman is credited with winning “significant concessions from the banks in recent days.” In New York, some 46,000 borrowers will benefit from the deal and 21,000 will have their debt reduced through a principal reduction. Schneiderman was also recently chosen by President Obama to lead a group investigating misconduct related to mortgage-backed securities.

There don’t seem to be any delusions that the agreement will fix everything, but it is something. The Times notes right away that “the aid will help a relatively small portion of the millions of borrowers who are delinquent and facing foreclosure. The success could depend in part on how effectively the program is carried out because earlier efforts by Washington aimed at troubled borrowers helped far fewer than had been expected.” But the deal is called “the broadest effort yet to help borrowers owing more than their houses are worth.”

I just don’t think it’s going to be a life-changing event for borrowers,” said one expert, whose company buys discount loans from banks. An economist from Columbia Business School added, “It may be good for individual homeowners, but if you don’t do something to help the foreclosure process, it’s not going to help the housing market.” And as noted by the Wall Street Journal, “it isn’t likely to result to a significant hit to bank earnings.”

This post has been updated throughout.

Banks Near $26 Billion Foreclosure Settlement