by Broderick Perkins
(1/23/2012) - The five largest U.S. mortgage lenders have offered a $25 billion settlement proposal that could make it easier for some struggling homeowners to avoid foreclosure and have their mortgage balances reduced.
In 2010, state attorneys general jointly launched an investigation into "robo-signing," "dual tracking," and other questionable procedures Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial used to process foreclosures by the bushel.
Critics are already calling the proposed settlement too-little, too-late, given the remaining number of foreclosures in the pipeline.
• The settlement would only apply to privately held mortgages written between 2008 and 2011. Fannie Mae- and Freddie Mac-insured loans would be exempt. The two agencies own half of all U.S. mortgages.
• An estimated 1 million homeowners could get the principal amount of their mortgages written down by an average of $20,000, at the cost of $17 billion. That's not much, given many homes in hardest hit and high cost states are worth half their original purchase values.
• A $5 billion reserve account would be available for various state and federal programs, including a portion used to write $1,800 checks to an estimated 750,000 homeowners who lost their homes in foreclosures affected by the deceptive practices. It's a small consolation for those previous homeowners.
• About $3 billion would help homeowners refinance at 5.25 percent, a surprisingly high rate, given today's rates are below 4 percent.
• Changes in foreclosure procedures. Little detail was available on this portion.
The deal is only an offer from the banks and not final.
California withdrew from the investigation last year disputing previously proposed settlements as insufficient for the Golden State's homeowners.
California is one of states hardest hit by the housing crisis and isn't likely to return to the table for the deal.
Fortunately, if the deal is accepted by the remaining states, it won't release banks from future criminal lawsuits by individual states. Also, New York, Delaware, Nevada and Massachusetts, separately sued five major banks over deceptive foreclosure practices to make sure they also remained liable for civil penalties.
The proposed settlement is separate from federal agencies' similar, ongoing efforts.
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