WASHINGTON (Reuters) ? Five big U.S. banks accused of abusive mortgage practices have agreed to a $25 billion government settlement that may help roughly one million borrowers but is no magic bullet for the ailing housing market.
The record state-federal settlement will spread relief widely in the form of mortgage relief and $2,000 payments to borrowers who lost their homes to foreclosure.
It will also release the banks - Bank of America Corp, Wells Fargo & Co, JPMorgan Chase & Co, Citigroup Inc and Ally Financial Inc - from civil government claims over faulty foreclosures and mishandling of requests for loan modifications.
But the banks still face a host of other potential government enforcement actions and investor lawsuits related to their packaging of home loans into securities, and other mortgage-related activities.
"The bottom line about this settlement, is it's okay, it's a step forward, it's a step in the right direction. But let's not kid ourselves, there's a hell of a lot more that needs to be done," said Ira Rheingold, executive director of the National Association of Consumer Advocates.
The housing settlement gives President Barack Obama, as he seeks re-election in November, a chance to show his administration is willing to get tough with big banks to help ordinary Americans survive the pain of the nation's foreclosure crisis.
"We have reached a landmark settlement with the nation's largest banks that will speed relief to the hardest hit homeowners in some of the most abusive practices of the mortgage industry and begin to turn the page on an era of recklessness that has left so much damage in its wake," Obama said in a press conference on Thursday.
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Graphic on foreclosed properties: http://r.reuters.com/vet42s
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RELIEF BREAKDOWN
The deal with 49 states and federal agencies, including the U.S. Justice Department and the Department of Housing and Urban Development, is being billed as the largest federal-state settlement ever obtained.
It follows more than one year of negotiations after evidence emerged late in 2010 that banks robo-signed thousands of foreclosure documents without properly reviewing paperwork as the financial crisis produced a flood of foreclosures.
Home values have dropped 33 percent from their 2006 peak and nearly 11 million Americans now owe more than their homes are worth.
Under the deal, roughly 750,000 borrowers who lost their homes to foreclosure between 2008 and 2011 can expect to receive a $2,000 cash payment.
The banks would also provide $17 billion in principal reduction and loan modifications for delinquent borrowers who are facing foreclosure.
The deal would also include $3 billion to help borrowers who are current on their mortgage payments but unable to refinance because they owe more than their homes are worth.
Further, banks agreed to new servicing standards, including stricter oversight of foreclosure processing and a single-point-of-contact for borrowers.
The program is designed to last for three years, but includes incentives for banks to provide relief in the first year.
"The principal reduction helps stabilize the market a little bit, but not significantly," said Brian Gardner, an analyst at Keefe, Bruyette & Woods Inc. "The monthly savings for those involved will be modest."
BANK IMPACT
The deal does little to ease investor fears over banks' mortgage liabilities, industry analysts said.
"We believe any initial euphoria over the deal will quickly fade as investors realize the flood of additional mortgage-related litigation that the major banks face," said Guggenheim Partners analyst Jaret Seiberg in a note on Thursday.
The settlement resolves allegations of state and federal law including the use of robo-signed affidavits in foreclosure proceedings and deceptive practices in offering loan modifications.
It also covers claims the banks failed to offer alternatives before foreclosing on borrowers with federally insured mortgages, and filed improper documentation in federal bankruptcy court.
In another component of the settlement, Bank of America will pay $1 billion to resolve a separate investigation into "fraudulent and wrongful conduct" by the bank and the Countrywide Financial unit it acquired in 2008.
In addition, the Federal Reserve is imposing $766.5 million in penalties on the five banks as part of the settlement.
The agreement does not prevent the government from pursuing banks for wrongdoing related to the packaging of loans into securities, the target of a task force the Obama administration launched last month, and the subject of many investor lawsuits.
DISSIDENT STATES
The deal came together after negotiators were able to win support from a handful of states, including California and New York, that had criticized earlier terms of the proposed deal as too lenient toward the banks.
The lone holdout, Oklahoma Attorney General Scott Pruitt, declined to sign the settlement and said he was concerned the settlement "greatly overreached" the authority of the states and could be unfair to homeowners who continued to pay their mortgage.
He entered a separate $18.6 million deal with the five banks to receive his portion of funds from the settlement that go directly to the states.
California, one of the hardest-hit states in the foreclosure crisis, signed on after winning assurances of how much relief would go specifically to its homeowners.
(Reporting By Aruna Viswanatha and Rick Rothacker, with additional reporting by David Henry, Jim Vicini, Margaret Chadbourn, Matt Spetalnick, Tim Reid and Dave Clarke; writing by Karey Wutkowski; Editing by Gerald E. McCormick and Tim Dobbyn)
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