The $25 billion settlement with the five biggest banks related to foreclosure abuses including “robo-signing” of documents is the largest multi-state settlement since the Tobacco Settlement in 1998, said the Department of Justice.
California will receive a big chunk of the settlement, up to $18 billion. A separate agreement calls for banks to enact a minimum of $12 billion in principal reductions for the state’s homeowners.
California’s attorney general Kamala Harris said that $12 billion has been guaranteed for about 250,000 homeowners who are underwater on their loans and behind or almost behind in their payments, for an average of $48,000 each. Harris estimates $849 million will be dedicated to refinancing loans of 28,000 homeowners who are current on their payments but underwater on their loans, for an average of $30,321 each. Another $279 million will be designated to offer restitution to about 140,000 California homeowners who were foreclosed upon between 2008 and Dec. 31, 2011, for an average of about $1,993 each. Another $3.5 billion is set aside to relieve 32,000 California homeowners of unpaid balances remaining when their homes are foreclosed, for an average of $109,375 each.
Among the money allocated will be $1.5 billion distributed nationwide to about 750,000 borrowers who lost their homes to foreclosure.
Gordon Whitman, policy director for PICO National Network of faith-based community organizations, said the deal is “‘too small” compared to the $700 billion in negative equity in the U.S. and our total outstanding mortgage debt of $8.8 trillion. I am still elated by today’s news. I feel a little hope.
Attorney General Eric Holder said the deal by 49 state attorneys general does not preclude states from pursuing their own suits against the banks. (The state attorney general of Oklahoma did not sign the settlement.) Holder announced further terms of the deal would be on the website, NationalMortgageSettlement.com, and residents of the states involved should visit the sites of their respective attorneys general.
N.Y. Attorney General Eric Schneiderman, in his interview today with CNBC TV, said that the most important issues from his point of view have always been that whatever relief the investigations provided are that (1) the people who engaged in misconduct will be held accountable; (2) that homeowners will receive some relief; and (3) that facts are aired out so that this never happens again.
Schneiderman had objected to the earlier forms of settlement because the level of relief provided was really not commensurate with the kind of releases the banks sought. The banks wanted immunity from lots of misconduct that have not even been investigated yet. Schneiderman said he is satisfied that after some tough negotiations in the last few months the banks have been released from conduct like robo signing and flaws in their notarization process, in the foreclosure process. But the conduct that actually led to the meltdown of the economy is still all fair game for investigation.
President Obama has unveiled a joint working group of which Schneiderman is a co-chair, that will be digging in on issues related to possible tax fraud and other misconduct pre-crash. All criminal prosecutions have been preserved; Schneiderman’s claims about the shadow mortgage system, which was computerized rather than going through county clerk offices have been preserved. As big as this settlement is, Schneiderman said it is just a down payment on the way to broader relief. This settlement resolves a few issues like robo signing, but there are more issues to resolve and investigations are ongoing.
When asked where he stand on the moral hazard issue — those homeowners who are underwater but have been making their payments, perhaps through a second job to keep up with their mortgage, who are not likely to get relief as a result of the settlement — Schneiderman says the settlement actually does provide relief for people who are underwater, whether or not they are in default or foreclosure because a foreclosure hurts the entire community. People who are struggling to keep up with underwater mortgages are not out spending money, buying dinner, moving the economy forward. It is in everyone’s interest going forward. And the ongoing investigations will “deal with the issue, that up until 2003, the market was working the way the markets were supposed to work, but negative amortization, documentation loans that took place in the years after that, there was an artificial inflation of the housing bubble. There was market abuse. Some of it might have been legal, in which case we should change the … laws, some of it was illegal and people should be held to account for that.”
The current settlement does not involve Fannie and Freddie. Schneiderman says there are three pools of mortgages out there that need to be addressed if we are going to get comprehensive relief. The first are the mortgages held in the banks’ portfolios, which is essentially what’s at issue in the settlement today. Then there are mortgages held by investors and the investors have their right to get payment, too. The largest pool are the mortgages held by the government entities, Freddie and Fannie, they have to be a part of any final resolutions in this crisis.
The joint investigation going forward, Schneiderman says, is really focused now much more on the conduct that contributed to the artificial inflation of the housing bubble, and the crash.