The five largest U.S. mortgage lenders have agreed to a $25 billion settlement over foreclosure practices, but with scant details, consumer advocates in Georgia say they have concerns about its effectiveness.
The five banks— Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial, all major mortgage lenders in Georgia — and the state attorneys general could adopt the agreement within weeks, the Associated Press reported Monday, citing unnamed government officials briefed on the discussions.
The agreement could change mortgage lending guidelines and make it easier for those at risk of foreclosure to restructure loans. About 1 million homeowners could see the size of their mortgages reduced.
Those who lost homes to foreclosure are unlikely to get homes back or benefit much financially from the settlement. About 750,000 Americans affected by deceptive practices will likely receive checks for about $1,800, the AP reported.
Criteria for deciding who gets a principal reduction or payment aren't yet known.
It would be the biggest settlement with a single industry since the 1998 multistate tobacco deal.
Georgia had the fourth highest rate of foreclosure filings in the U.S. last year at one in every 37 homes, according to RealtyTrac.
A draft settlement between the banks and U.S. states has been sent to state officials for review. A spokeswoman for Georgia Attorney General Sam Olens said Olens had no comment on the AP report.
The attorneys general of the 50 states launched a joint investigation in late 2010 in the wake of the “robo-signing” controversy, in which some banks were using flawed documents to foreclose.
Citing the lack of specifics, Frank Alexander, a real estate law professor at Emory University, said it’s too soon to say how effective a settlement might be.
Changes to mortgage lending rules, for instance, could be great for consumers if they have teeth, he said. The $1,800 assistance checks probably will be “little solace,” he said, to families displaced by foreclosures done in error.
The settlement would be weak if rule changes aren’t “game changers,” Alexander said, or, for instance, if it shields lenders from future civil lawsuits by consumers or states.
“Until one sees the precise terms of the proposed settlement, all we can do is speculate,” Alexander said.
The state settlements would not fully protect banks from future potential criminal proceedings by individual states, but the AP report did not mention civil cases.
President Barack Obama is expected to address the housing crisis and unveil new administration proposals during his State of the Union address on Tuesday.
The settlement would only apply to privately held mortgages issued between 2008 and 2011, not those held by government-controlled Fannie Mae or Freddie Mac.
Fannie and Freddie own about half of all U.S. mortgages, roughly about 31 million U.S. home loans.
As part of the deal, about 1 million homeowners could also get the principal amount of their mortgages written down by an average of $20,000. One in four homeowners with a mortgage — or roughly 11 million people — owe more than their home is worth. These so-called "underwater" borrowers have little chance at refinancing.
“If the goal is to provide real relief for homeowners or real compensation for those who have lost their homes, this has not accomplished that goal,” said Karen Brown, director of the Home Defense Program of Atlanta Legal Aid Society.
Atlanta Legal Aid deals with many distressed homeowners whose houses are far more than $20,000 underwater, Brown said.
Democratic attorneys general met Monday in Chicago to discuss the deal with Housing and Urban Development Secretary Shaun Donovan. Republican attorneys general will be briefed about the deals via conference call later in the day.
Critics, including some members of Congress, say they want a thorough investigation of potentially illegal foreclosure practices before a settlement is hammered out.
"Wall Street again is trying to pass the buck. Instead of criminal prosecutions, we're talking about something that's not more than a slap on the wrist," said Sen. Sherrod Brown (D-Ohio), who has been critical of the proposed settlement.
Under the deal:
— $17 billion would go toward reducing the principal that struggling homeowners owe on their mortgages.
— $5 billion would be placed in a reserve account for various state and federal programs; a portion of that money would cover the $1,800 checks sent to those homeowners affected by the deceptive practices.
— About $3 billion would to help homeowners refinance at 5.25 percent.
In October 2010, major banks temporarily suspended foreclosures following revelations of widespread deceptive foreclosure practices by banks. Discussions then began over a national settlement.
Some states have disagreed over what terms to offer the banks. In September, California announced it would not agree to a settlement over foreclosure abuses that state and federal officials have been working on for more than a year.
New York, Delaware, Nevada and Massachusetts, which sued five major banks earlier in December over deceptive foreclosure practices, have also argued that banks should not be protected from future civil liability. The deal will not fully release banks from future criminal lawsuits by individual states.
And both sides have also fought over the amounts of money that should be placed in the reserve account for property owners who were improperly foreclosed upon. Many of the larger points of the deal, including a $25 billion cost for the banks, have long been worked out, officials say.
The proposed settlement with the states’ attorneys general is separate from censures issued last year by federal bank regulators against more than a dozen mortgage servicers, including Atlanta-based SunTrust Banks.
SunTrust said last week it was starting discussions on a settlement related to mortgage servicing and foreclosure practices, joining other major banks talks with state officials. The bank declined further comment Monday.
--The Associated Press contributed to this article.
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