Deal to Provide Foreclosure Relief Near

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The nation’s few remaining large banks and the state and federal governments moved closer to a deal that ultimately may provide financial relief to homeowners facing foreclosure and those foreclosed upon.  The banks — led by the five biggest mortgage servicers, Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial–may pay $25 billion into a fund for mortgage relief to settle the so-called “robo-signing” scandal.  Calling it “robo-signing” understates the serious of the crimes of which the bank staff are accused.  Each false sworn affidavit, of which there were thousands, and possibly into the millions, likely constitutes a felony.  Needless to say, the accused are anxious to pay what it takes to avoid a possible harsher penalty and the governments are anxious to avoid an enormously cumbersome prosecution.  The upshot may be some relief for stressed homeowners and those who have lost their homes.  (Needless to say, the foregoing is an opinion, not a legal analysis.)

With a deadline looming today for state officials to sign onto a landmark multibillion-dollar settlement to address foreclosure abuses, the Obama administration is close to winning support from crucial states that would significantly expand the breadth of the deal. The biggest remaining holdout, California, has returned to the negotiating table after a four-month absence, a change of heart that could increase the pot for mortgage relief nationwide to $25 billion from $19 billion. Another important potential backer, Attorney General Eric T. Schneiderman of New York, has also signaled that he sees progress on provisions that prevented him from supporting it in the past. The potential support from California and New York comes in exchange for tightening provisions of the settlement to preserve the right to investigate past misdeeds by the banks, and stepping up oversight to ensure that the financial institutions live up to the deal and distribute the money to the hardest-hit homeowners. The settlement would require banks to provide billions of dollars in aid to homeowners who have lost their homes to foreclosure or who are still at risk, after years of failed attempts by the White House and other government officials to alter the behavior of the biggest banks. The banks — led by the five biggest mortgage servicers, Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — want to settle an investigation into abuses set off in 2010 by evidence that they foreclosed on borrowers with only a cursory examination of the relevant documents, a practice known as robo-signing. Four million families have lost their homes to foreclosure since the beginning of 2007. If banks fall short of the multibillion-dollar benchmarks set out for principal reduction and other benefits for homeowners, they will have to pay the difference plus a penalty of up to 40% directly to the federal government, according to Mr. Madigan. The settlement, if all states participate, will also include $3 billion to lower the rates of mortgage holders who are current. Banks will get more credit for reducing principal owed and helping families keep their homes, and less for short sales or taking losses on loans that were likely to go bad, like those that were severely delinquent.

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