Feds, states, banks agree to $26 billion mortgage settlement
Five major mortgage servicers agreed to a $26 billion settlement with state and federal officials in a deal that is being called historic, but which critics are likely to say doesn’t go far enough.
The deal could grow to $30 billion if nine more servicers sign on, and it’s expected to cover almost all 50 states, a White House official said Thursday.
The settlement would be the biggest involving a single industry since a 1998 multistate tobacco deal.
A monitor will be appointed to see that it is carried out.
The five servicers involved so far —Bank of America, JP Morgan Chase, Citigroup, Ally Financial and Wells Fargo— will provide $17 billion in mortgage relief to more than 1 million homeowners. Another $1 billion will go to the federal government; $3 billion will help the servicers refinance borrowers into lower-interest rate loans.
Hundreds of thousands of borrowers are also expected to receive restitution, averaging $1500 to $2000, if they lost homes to foreclosure from 2008 to the end of 2011.
The relief must be extended within three years or servicers would have to pay any remaining part of the settlement in cash. To encourage servicers to do more work sooner rather than later, given the ongoing foreclosure crisis, they’ll get more credit for modifying and refinancing loans in the first year of the deal.
The settlement, which has been a year in the making, will create the largest effort by servicers so far to write down the amount homeowners owe on underwater mortgages, where the homeowners owe more than the house is now worth. Falling property values have put many homeowners under water.