Attorneys General in all 50 states have been negotiating with banks and lenders for over a year to come up with a settlement that will be fair to homeowners who are nearing foreclosure because they owe more than their houses are worth. A deal may have been reached, although large states such as California, Florida, New York and Nevada still have some issues they need to work out before they agree to the settlement. They have not walked away yet, however, and may ultimately sign onto the settlement that has been worked out.
The deal as it is currently written could bring in up to $25 billion from some of the nation’s largest banks to help homeowners who qualify for assistance in reducing the mortgage principal they owe. According to CNN, this would provide the largest amount of financial aid to homeowners since the housing crisis began. Close to 1 million homeowners who owe more in principal than their homes are worth would be able to reduce what they owe by up to $20,000.
What do the banks get in return? Mortgage servicers will be released from any future servicing and originating claims, which have flooded their offices due to the robo-signing scandal. It was discovered that many large banks and mortgage servicing offices cut corners and foreclosed on homeowners improperly. This deal would not return homes to people who have lost their houses to foreclosure already.
The robo-signing issue and other questions about ethics in the mortgage industry prompted agents and brokers to help consumers learn more about their lenders when they buy a home. If you are wondering if you might be eligible for this settlement once it is finalized, ask for help from your agent or your broker.
The states that are holding out appear to be concerned that if they sign onto this deal, their own investigations into mortgage scandals and potential crimes will be inhibited. Negotiators are working to ensure that states can still pursue criminal investigations. Some consumer groups have urged states not to settle this easily, and to hold out for a larger criminal investigation that could result in stiffer penalties and more money for homeowners. The Center for Responsible Lending is in favor of it, however. They believe it holds banks accountable and will improve communication in the future.
In addition to the state’s attorneys general, federal agencies including the Department of Housing and Urban Development and the Department of Justice are participating. The largest lenders at the negotiating table have been Bank of America, Wells Fargo, Citigroup, JP Morgan Chase, and Ally Financial. According to Thomas Miller, the Attorney General of Iowa and leader in the negotiations, with 40 states signing off on Monday, the deal will move forward to the next steps while states such as California, New York, Nevada and Florida decide what to do.