U.S. Attorney General Eric Holder and the Department of Housing and Urban Development (HUD) Secretary Shaun Donovan announced today that the federal government and 49 state attorneys general have reached a landmark $25 billion agreement with the nation's five largest mortgage servicers to address mortgage loan servicing and foreclosure abuses.
"This agreement - the largest joint federal-state settlement ever obtained - is the result of unprecedented coordination among enforcement agencies throughout the government," said Attorney General Holder said in a statement. "It holds mortgage servicers accountable for abusive practices and requires them to commit more than $20 billion towards financial relief for consumers. As a result, struggling homeowners throughout the country will benefit from reduced principals and refinancing of their loans."
The five banks included in the settlement are Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial. NPR's Yuki Noguchi explains the deal and where the bulk of the money would go:
It's a deal that will extract some penalties from the banks -- about $25 billion -- if all states sign on. In exchange, the banks will get what's known as a "release," sort of like an immunity, from lawsuits regarding how they handled some home loans.
Most of the money -- $20 billion -- would go toward writing down principal payments for homeowners who were not foreclosed upon, but who are struggling now. There could be a million such homeowners eligible. The way it would work is that the banks would have targets they have to meet, in terms of what kinds of loans they would have to modify. But the banks would still have a lot of discretion in who gets what.
And there's another $5 billion in cash, part of which would go to the states to help fund homeowner assistance programs. Some of the rest would go to homeowners who may have been wrongfully foreclosed upon. For them, it's up to $2,000 each, which is not much if you lost your home.
But some advocates say today's settlement is a tiny drop in a big bucket.
"It does not do justice for the millions of homeowners who lost their homes or hold the banks fully accountable for their crimes. For homeowners who were defrauded and lost their homes, $2,000 is too little, too late. It is a paltry down payment toward full relief for homeowners," read a statement from The New Bottom Line, a coalition of housing advocates.
"Despite its flaws, the settlement announced today is stronger than it would have otherwise been because of grassroots groups and the courageous stance of Attorneys General from California, New York, Nevada, Delaware, and Massachusetts, who fought hard to bring more relief to homeowners and make sure that any settlement does not allow the banks to avoid accountability for fraudulent activity not yet investigated. Due to their work and the work of many allies, momentum is building toward broad-scale relief for homeowners," The New Bottom Line's statement went on to say.
The advocates the New Bottom Line say what happens next is critical. What happens next is critical. "This is the President's chance to show he is a champion for the 99%."
"The Obama Administration needs to make sure that its task force goes the distance and delivers at least $336 billion in principal reduction on underwater mortgages and $50 billion in restitution for affected homeowners,"