Five major mortgage lenders could be facing concessions totaling $19 billion as bank representatives and government officials put finishing touches on a settlement for wrongful mortgage foreclosures, sources have told The Wall Street Journal. Officials have been working with banks for months to determine how they should be held responsible for the mortgage robo-signing scandal, but some states expressed concerns that the deal on the table doesn’t meet their expectations.
Banks Held Responsible for Wrongful Mortgage Foreclosures
Housing and Urban Development Secretary Shaun Donovan, along with officials from several states, have been working to develop a deal that would hold major banks responsible for their roles in the robo-signing scandal that plagued the housing market with mortgage foreclosures in 2010 and 2011.
The banks involved in the settlement are the nation’s five largest mortgage servicers: Ally Financial Inc., Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co.
While specifics of the settlement have not been disclosed, banks are expected to be responsible for least $19 billion in concessions that could include principal write-downs and interest-rate reductions for homeowners, as well cash penalty payments to the government.
The total amount could jump to as much as $25 billion if California, which accounted for 13.1 percent of all mortgages outstanding and 10.8 percent of all loans in foreclosure, joins in the deal. The state walked away from settlement talks in September.
Robo-Signing Scandal Concessions are Met with Question
Individuals involved in the talks told WSJ that a deal could be reached as early as this week, but details regarding what states will participate are still being ironed out. In addition to California, states like Nevada, Delaware, Massachusetts and New York have expressed reservations about the deal possibly falling short of expectations.
New York Attorney General Eric Schneiderman, who has had several conversations with Donovan in recent months, wants to be certain the banks are properly held responsible for their actions.
A spokesman for Schneiderman told WSJ, “We remain engaged with our federal counterparts to ensure there is real accountability for misconduct in the mortgage industry and significant relief for those who have suffered through this crisis.”
In addition to determining state involvement, officials and bank representatives still must choose a monitor who will be responsible for seeing that banks comply with the final agreement. Also, both sides are working on a mechanism under which states can act to enforce the settlement.
Since negotiators are still working out these details, as well as working to decide what additional legal claims prosecutors could bring once a deal is signed, a formal announcement of the concessions agreement on mortgage foreclosures could be delayed until January.
