Deadline Arrives for Long-Awaited Foreclosure Settlement

  • February 06, 2012
  • By John Gramlich
After 16 months of talks, state attorneys general must decide by today (February 6) whether they will join a settlement with five major banks they accuse of using illegal lending practices to cheat homeowners and worsen the national foreclosure crisis, sources tell The New York Times and The Wall Street Journal .

The negotiations have been rumored to be nearing their end for months, and sources previously indicated a final settlement deadline of last Friday, The Journal notes. This time, however, sources "say it is for real," the paper reports.

As Stateline noted in an explainer at the one year-mark of the negotations, states accuse the five banks - Bank of America, Citigroup, JP Morgan Chase, Wells Fargo and Ally Financial - of cheating homeowners around the country by relying on the illegal "robosigning" of foreclosure-related paperwork, resulting in widespread errors and even in the wrongful foreclosure of some homes. Together, the five banks control two-thirds of the nation's mortgage-servicing market, and state attorneys general say there is evidence of improper practices in every state.

The settlement seeks to recoup tens of billions of dollars in up-front money from the banks in exchange for future immunity from legal claims. But many questions remain unanswered, including how many states, and which ones, will sign on to the agreement; how much the overall settlement will be worth; and what kind of immunity the banks will receive.

The New York Times reports that California, which stepped aside from the 50-state talks last year after Attorney General Kamala Harris suggested that the banks would receive too favorable of a deal, has rejoined the negotiations and could declare its support for the settlement. New York Attorney General Eric Schneiderman, who voiced similar concerns,
"has also signaled that he sees progress on provisions that prevented him from supporting it in the past," The Times reports.

With the support of California and New York, the price tag of the settlement could reach $25 billion, with every state that signs onto the deal receiving a share of the money. The money would be used to provide relief to distressed homeowners, including through the creation of assistance helplines and, potentially, through targeted loan forgiveness for underwater borrowers.

Bloomberg reports that three states, Connecticut, Oregon and Louisiana, have said they will accept the settlement, with their attorneys general preferring immediate relief rather than protracted litigation. "I am not confident we could get a better agreement on this limited set of issues if we litigated for several more years," Oregon Attorney General John Kroger tells Bloomberg.

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