White House Announces $25 Billion Mortgage Settlement

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Courtesy of Time.com

It’s been a long slog, but government officials and representatives  from major U.S. banks have come to terms on a settlement that would put an  end to federal and state investigations into alleged foreclosure abuses by  financial institutions.

Details of the settlement were announced this morning, and a website  explaining the plan went live today as well.  President Obama also gave a  statement at the White House saying the deal “will begin to turn the page on an  era of recklessness that has left so much damage in its wake.”

The five major banks involved in the settlement: Bank of America, JPMorgan  Chase, Wells Fargo, Citigroup, and Ally Financial will pay roughly $25 billion  in penalties and relief to borrowers, states and the federal government.  According the terms outlined today, the big banks will pay:

  • $20 billion in direct consumer relief, with $17 billion going to principal  reduction, and $3 billion to help underwater borrowers refinance their mortgages  at lower rates;
  • $4.25 billion of cash will be distributed to states, with $1.5 billion going  out as checks to borrowers who were victims of foreclosure abuses, and $2.75  distributed to state governments to help with foreclosure prevention efforts;  and
  • $750 million will be paid to the federal government to pay for similar  efforts.

Borrowers who were victims of foreclosure abuses must file claims to receive  cash payments, which will range from $1,500 to $2,000 depending on how many  claims are filed. Reports  indicate that roughly 750,000 homeowners would be eligible to file  claims.

(MORE: How ‘Shadow Inventory’ Is Killing the Housing Market)

The deal should create much more certainty for the banks going forward, and  the amount of cash the banks are required to forfeit is quite small.  However, the suit leaves open room for states attorneys general and individuals  to bring additional suits related to mortgage securitization, and to bring suits  against MERScorp, a company created by large banks to streamline  the  process of transferring mortgage ownership during the securitization  process.

The deal is also a win for states attorneys general and the administration,  who can now point to this settlement, the largest of its kind since the tobacco  settlement of the 1990s, as concrete action taken to right the wrongs  perpetrated by the mortgage industry leading up to and following the financial  crisis.

Read more: http://business.time.com/2012/02/09/25-billion-mortgage-settlement-to-be-announced-this-afternoon/?iid=biz-main-lede#ixzz1lx8gIvbE

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