A Landmark Mortgage Settlement Deal

A $25 billion mortgage settlement deal was announced on February 9, 2012 that would put more checks-and-balances to nation's foreclosure abuses. Federal and state officials said that the deal was struck by the federal government, 49 states and five big lenders. Oklahoma negotiated a separate deal with the five lenders. Negotiation is still in progress involving 14 other lenders. There are two different groups of recipients under the deal: State and Federal government agencies, and individual borrowers. The breakdown of payments, under the deal,  is given below:

(1) Bank of America  $3.24b (state and federal) $8.58b (relief to borrowers)

(2) Wells Fargo       $1.01b (state and federal) $4.34b (relief to borrowers)

(3) J.P. Morgan Chase  $1.08b (state and federal) $4.21 (relief to borrowers)

(4) Citigroup $0.42b (state and federal) $1.79 (relief to borrowers)

(5) Ally Financial $0.11b (state and federal) $0.2b (relief to borrowers)

The deal requires the lenders to reduce loans for 1 million households at the brink of foreclosure, and send an average of $2,000 to about 75,000 Americans, who have been improperly foreclosed between 2008 and 2011. The banks will have three years to comply with the terms of the deal. Under the deal, the states have agreed not to pursue civil charges over the abuses covered by the settlement. Homeowners can still pursue on their own, and federal and state authorities can still press criminal charges against the lenders.The deal, arrived at the end of 16 months of contentious negotiations, is the biggest settlement by a single industry since the $206 billion 1998 tobacco deal with several states. The settlement also ends a separate inquiry into inflated appraisal practices followed by Countrywide, acquired by the Bank of America in 2008, from 2003 through 2009. Estimated 1 million households entitled to get relief from lowering of the loans would see, under the deal, an average reduction of $20,000 off their principal. But 90 percent of underwater homeowners would not be entitled to get relief out of the settlement although some may refinance their mortgages at 5.25 percent. However, loans held by Fannie Mae and Freddie Mac--almost half of all mortgages--are excluded from the settlement. North Carolina's banking commissioner, Joseph A. Smith Jr., will be an ombudsman for the deal.