February 9, 2012 in Nation/World

Mortgage abuse settlement will direct $750 million to Northwest homeowners

From staff and wire reports

On the web

More information can be found at The National Mortgage Settlement website.

Settlement’s effect on Wash. homeowners

Washington homeowners and former homeowners will receive about $648 million in benefits from the settlement, said state Attorney General Rob McKenna, a member of the executive team that negotiated the settlement with the nation’s five largest mortgage banks. Of that total, about $483 million goes to relief programs such as loan modifications and principal reductions for delinquent borrowers who cannot afford their current payments but have a reasonable chance of succeeding with a lower level of debt, and by encouraging short sales and providing relocation money for those whose homes mortgages can’t be saved. Another $84 million is set aside for borrowers current on mortgages for homes worth less than the amount owed; $24 million for borrowers who already lost homes that were improperly foreclosed, who would get payments of about $2,000; another $45 million goes to the state to set up foreclosure relief and housing programs, with a new committee distributing that money. The settlement also includes about $10 million in civil penalties and cost recovery for work by the attorney general’s office.

Settlement’s effect on Idaho homeowners

Idaho borrowers will net almost $100 million in benefits from the settlement. That will include $74.7 million in benefits from loan modifications and $10 million in benefits for about 5,000 borrowers who lost their homes to foreclosure from 2008 to 2011 because of substandard practices, Attorney General Lawrence Wasden said in a news release. Those homeowners will receive between $1,500 and $2,000 apiece. In addition, $15 million will be put in a fund to help borrowers refinance their loans at lower rates. Lastly, the state will receive about $14 million from the settlement.

WASHINGTON — U.S. states have reached a $25 billion deal with the nation’s biggest mortgage lenders over foreclosure abuses that occurred after the housing bubble burst.

The settlement directs $648 million in benefits to Washington and almost $100 million in benefits to Idaho. Much of that money will be used for home loan relief programs and payments to borrowers who lost homes through improper foreclosure.

Federal and state officials announced the deal today. It is the biggest settlement involving a single industry since a 1998 multistate tobacco deal.

Under the agreement, five major banks — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — will reduce loans for nearly 1 million households. They will also send checks of $2,000 to about 750,000 Americans who were improperly foreclosed upon. The banks will have three years to fulfill the terms of the deal.

All but one of the 50 states agreed to the deal. Oklahoma, the lone holdout, will receive no money.

The conditions will be overseen by Joseph A. Smith Jr., North Carolina’s banking commissioner. Lenders that violate the deal could face $1 million penalties per violation and up to $5 million for repeat violators.

The settlement ends a painful chapter that emerged from the financial crisis, when home values sank and millions edged toward foreclosure. Many companies processed foreclosures without verifying documents. Some employees signed papers they hadn’t read or used fake signatures to speed foreclosures — an action known as robo-signing.

Under the deal, 49 states said they won’t pursue civil charges related to these types of abuses. Homeowners can still sue lenders in civil court on their own, and federal and state authorities can pursue criminal charges.

“There were many small wrongs that were done here,” said U.S. Housing and Urban Development Secretary Shaun Donovan. “This does not resolve everything. We will be aggressive about going after claims elsewhere.”

Bank of America will pay the most to borrowers as part of the deal — nearly $8.6 billion. Wells Fargo will pay about $4.3 billion, JPMorgan Chase will pay roughly $4.2 billion, Citigroup will pay about $1.8 billion and Ally Financial will pay $200 million. This does not include $5.5 billion in federal and state payments.

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 acquired Countrywide in 2008.

“The settlement includes far reaching relief that will help many of our customers and complement our already extensive efforts to improve our borrower assistance efforts and servicing processes,” JPMorgan Chase said in a statement.

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. California has more than 2 million “underwater” borrowers, whose homes are worth less than their mortgages. New York has some 118,000 homeowners who are underwater.

In addition to the payments and mortgage reductions, 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.

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. 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:

— Roughly $1.5 billion for direct payouts, in the form of $2,000 checks, for about 750,000 Americans who were unfairly or improperly foreclosed upon; another $3.5 billion will go directly to states.

— At least $10 billion for reducing mortgage amounts.

— Up to $7 billion for other state homeowner programs.

— At least $3 billion for refinancing loans for homeowners who are current on their mortgage payments but who are underwater.

There are 23 comments on this story. Click here to view comments >>

Get stories like this in a free daily email