A landmark $25 billion settlement with the nation's top mortgage lenders was hailed by government officials Thursday as long overdue relief for victims of foreclosure abuses. But consumer advocates countered that far too few people will benefit.
The deal will reduce loans for only a fraction of those Americans who owe more than their homes are worth. It also will send checks to others who were improperly foreclosed upon. But the amounts are modest.
And few say the deal will do much to help struggling homeowners keep their homes or to benefit those who have already lost theirs.
About 11 million households are underwater, meaning they owe more than their homes are worth. The settlement would help a million of them.
"The total number of dollars is still small compared to the value of the mortgages that are underwater," said Richard Green, director of the University of Southern California's Lusk Center for Real Estate.
Federal and state officials announced that 49 states joined the settlement with five of the nation's biggest lenders. Oklahoma struck a separate deal with the five banks. Government officials are still negotiating with 14 other lenders to join.
Relief in Tennessee
In Tennessee, the agreement will provide an estimated $146 million in relief to Tennessee homeowners and addresses future mortgage loan servicing practices.
"This agreement avoids protracted and costly litigation while providing significant and tangible relief to distressed homeowners," Tennessee Attorney General Robert Cooper said. "The benefits of this agreement today far outweigh the possible benefits that might be obtained after several years in court.
Bank of America will pay the most to borrowers: nearly $8.6 billion. Wells Fargo will pay about $4.3 billion, JPMorgan Chase roughly $4.2 billion, Citigroup about $1.8 billion and Ally Financial $200 million. The banks will also pay state and federal governments $5.5 billion.
Absolution after debacle
The settlement ends a painful chapter of the financial crisis, when home values sank and millions edged toward foreclosure. Many companies processed foreclosures without verifying documents. Some employees signed papers they hadn't read or used fake signatures to speed foreclosures - an action known as robo-signing.
President Barack Obama praised the settlement, saying it will "speed relief to the hardest-hit homeowners, end 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."
The deal requires the banks to reduce loans for about 1 million households that are at risk of foreclosure. The lenders will also send $2,000 each to about 750,000 Americans who were improperly foreclosed upon from 2008 through 2011. The banks will have three years to fulfill terms of the deal.
The states have agreed not to pursue civil charges over the abuses covered by the settlement. Homeowners can still sue lenders on their own, and federal and state authorities can still pursue criminal charges.
The deal, reached after 16 months of contentious negotiations, is subject to approval by a federal judge. It's the biggest settlement involving a single industry since the $206 billion multistate tobacco deal in 1998.
Checks for some
But for the many people who lost their homes to foreclosure in the past two years, some of them improperly, a check for $2,000 is small consolation.
"Two thousand dollars won't cover my moving costs," said Brian Duncan, who was evicted from his Tempe, Ariz., home last April.
Iowa Attorney General Tom Miller, who led the 50-state talks, said the $2,000 represents the homeowners' best hope of getting reimbursed.
They would have had trouble winning settlements in court because of the time-consuming complexity of litigation, Miller said.
Mike Heid, president of Wells Fargo Home Mortgage, said the agreement "represents a very important step toward restoring confidence in mortgage servicing and stability in the housing market."
Foreclosure green light
Mark Vitner, a senior economist at Wells Fargo Securities, said the settlement may help the housing market in the long run. That's because it lets banks proceed with millions of foreclosures that have been stalled. Many lenders had refrained from foreclosing on homes as they awaited the settlement.
"We've got a lot of issues to work our way through in the housing market," Vitner said. "What this settlement does is allow that process to get started."
For the banks, the settlement comes mainly as a relief. The amount they have to pay isn't as large as many expected, and all have set aside adequate reserves. The cash portion of how much each bank has to pay is relatively small.
"It's really a wash," said Paul Miller, bank analyst at FBR Capital Markets. "A billion dollars is nothing for these large trillion-dollar banks."
The bulk of the settlement will go toward reducing underwater mortgages and refinancing some of them. But the banks had realized they weren't going to collect the loans and had already written down their value, Miller noted.
The deal requires banks to make foreclosure their last resort. And they can't foreclose on a homeowner who is being considered for a loan modification.
Still, the federal government has a dubious track record of enforcing such rules. The Obama administration's signature foreclosure-prevention program has failed to help more than half of those who have applied to have their mortgage payments lowered permanently. Many have complained that the program is a bureaucratic nightmare.
Critics also note that the settlement will apply only to privately held mortgages and not to those owned by mortgage giants Fannie Mae and Freddie Mac. Banks own about half of all U.S. mortgages, or roughly 30 million loans. Fannie and Freddie own the other half.
The deal is "another sad example of Wall Street not being held accountable for fraud, perjury and crimes that created the greatest economic crisis since the Great Depression," said Dennis Kelleher, CEO of Better Markets, a group that advocates stricter financial regulation. "The math does not add up in a massive 'robo-signing' scandal that is nothing more than systemic criminal conduct."
The settlement also ends a separate investigation into Bank of America and Countrywide for inflating appraisals of loans from 2003 through most of 2009. Bank of America acquired Countrywide in 2008.