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FACTDROP: U.S., Banks Agree on Foreclosure Pact


U.S., Banks Agree on Foreclosure Pact

HUD Secretary Shaun Donovan haggled with states over a deal.

Πηγή: WSJ
Feb 9 2012

Government officials have finalized an agreement worth as much as $26 billion with five major banks, capping a yearlong push to settle federal and state probes of alleged foreclosure abuses by lenders.

The deal represents the largest government-industry settlement since a multistate deal with the tobacco industry in 1998.

The agreement covers five banks: Ally Financial Inc., Bank of AmericaCorp.,Citigroup Inc., J.P. Morgan Chase & Co., and Wells Fargo & Co. Together, the five handle payments on 55% of all outstanding home loans, or about 27 million mortgages, according to Inside Mortgage Finance.

Federal and state officials planned to announce the settlement Thursday morning in Washington after putting the finishing touches on the deal following a marathon negotiating session that ended after midnight Thursday morning.

The agreement will include at least 49 states, and officials were finalizing a separate accord with one remaining holdout, Oklahoma.

The Obama administration made a full-court press over the past four days to secure the support of key state attorneys general, including those from Florida, California and New York. All three states are expected to be part of the announcement, people familiar with the situation said.

Representatives of the banks declined to comment.

The planned pact would involve around $5 billion in cash penalties, payable to borrowers, states and the federal government. That includes $1.5 billion in cash payments to borrowers who went through foreclosure between September 2008 and December 2011. Borrowers could receive $1,500 to $2,000 each, with the actual amount paid depending on the number of borrowers filing a claim.

The agreement is expected to call on the banks to provide $20 billion in other aid—by cutting loan balances for tens of thousands of homeowners and by refinancing thousands of borrowers who are current on their loans but owe more than their homes are worth.

Officials say the deal will help provide immediate benefits to around one million homeowners, while raising accountability for banks that work with borrowers facing foreclosure. The foreclosure process has been snarled since late 2010, after allegations that banks had serially submitted bogus mortgage documents when attempting to repossess homes from delinquent borrowers.

The bank payments would unlock a large new source of housing funding at a time when Congress doesn't appear likely to approve new spending measures to tackle lingering problems facing housing markets, such as a refinance program that President Obama unveiled last week.

The three key states overcame misgivings about the plan in recent days, people familiar with the situation said. The inclusion of California is especially important: People familiar with the discussions say the banks would have been willing to pay just $19 billion without the participation of the nation's most-populous state.

The office of California Attorney General Kamala Harris declined to comment. A spokeswoman for Florida Attorney General Pam Bondi said that "while Attorney General Bondi has not yet joined the settlement, she is hopeful that a resolution will be reached soon."

Shaun Donovan, secretary of Housing and Urban Development, became heavily invested in recent months in bringing the long-running negotiations to a conclusion. Mr. Donovan, who spent much of this week haggling with state officials over the final terms of the deal, made principal reduction a central piece of the deal but needed the support of as many states as possible to secure a price tag large enough to be meaningful.

The agreement is the latest government effort to ease housing-market problems that have plagued the economy for the past five years. Nearly 1.9 million homes have gone through foreclosure in the past two years, but just as many loans are in some stage of foreclosure.

On its own, the deal won't be a cure-all for the housing market or to the majority of borrowers at risk of foreclosure. Home prices have fallen by nearly one-third over more than five years, slashing real-estate values by $7 trillion and leaving 11 million homeowners with mortgages that are exceed their property values by $750 billion. High unemployment has frustrated round after round of federal efforts to stem foreclosures.

"It is frankly a headline victory for both banks and attorneys general with a modest impact on the housing market," said Joshua Rosner, managing director of investment firm Graham Fisher & Co.

The resolution is likely remove one cloud of uncertainty that has depressed bank stocks, and analysts say it isn't likely to result to a significant hit to bank earnings. Many of the loans where banks may reduce balances have already been marked down on their balance sheets, requiring them to have already built a cushion against losses.

"It's not new money. It's all soft dollars to the banks," said Paul Miller, a bank analyst at FBR Capital Markets.

Nadine Bond, who lost her home to foreclosure in 2010, is among those who expect to benefit from the settlement. Ms. Bond says that Ally's GMAC Mortgage unit foreclosed on her the day prior to what she had been told was the due date for her first loan modification payment. Ms. Bond, a receptionist who lives in Middletown, Conn., expects to qualify for a cash payment of $1,500 or so.

GMAC Mortgage said it "makes every effort to work with borrowers and avoid foreclosure whenever possible," and that "as a general practice, the company exhausts all home ownership preservation options with borrowers needing assistance."

Her attorney, Jeff Gentes, says he is pleased that the deal won't bar her from pursuing other ways to obtain relief, such as the review process set up by federal banking regulators.

But "I have mixed feelings" about the settlement, Ms. Bond says. "It will help, but it is not going to get my home back."

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