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Foreclosure deal coming soon

By Jay MacDonald · Bankrate.com
Monday, October 24, 2011
Posted: 9 am ET

After a year of discordant negotiations, a settlement is said to be imminent between U.S. states and the nation's largest mortgage lenders that would allow the banks to walk away from America's foreclosure mess for a reported $25 billion.

Reuters quotes sources close to the negotiations who say an agreement could be reached by the end of the month between state attorneys general and several federal agencies, including Fannie Mae and Freddy Mac, on one side and major mortgage lenders Ally Financial, Bank of America, Citigroup, JP Morgan Chase and Wells Fargo on the other.

Judging by the Reuters report, the banks recently agreed to up the ante from $20 billion to $25 billion in exchange for blanket immunity on all past foreclosure misdeeds.

"About 70 or 80 percent of that previous amount had been slated to settle federal claims and would be used by the banks to help troubled borrowers with a menu of options to include principal writedowns, cash for transition to rental housing and other forms of assistance," Reuters says.

Under terms of the settlement, the banks would get "broad legal immunity from state lawsuits in exchange for refinancing underwater loans, those mortgages where borrowers owe more than their homes are worth."

States had originally only considered immunity for shortcuts taken by mortgage servicing companies, including the "robosigning" of documents to speed delinquent homeowners into foreclosure.

But the banks, increasingly under siege from mounting lawsuits, held out for more.

"In recent days, the state attorneys general agreed to release major banks from claims that they made legal errors when first originating the loans, such as approving loans for borrowers without verifying any income," Reuters says.

Translation: a free pass for prior subprime lending shenanigans.

In exchange for legal immunity, the banks reportedly have agreed to refinance mortgages for borrowers who are current on their payments but owe more than their homes are worth.

"Around 20 percent of all mortgages are bank-owned. Those loans which are underwater are generally not currently eligible for refinancing," according to Reuters.

It is unclear how many homeowners would qualify for such a refi however.

Would you cheer this settlement? After all, most U.S. housing markets continue to struggle under the weight of the foreclosure mess.

Or are you outraged that America's banking giants are being allowed to simply write a check and walk away from a mess they helped create?

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9 Comments
accessiblemediaone
October 27, 2011 at 12:34 am

At least Obama is trying to do something to help the people, even though the greedy banks don't want to. The GOP plan is to let the middle class fail, so the top 1% can take advantage of it and make themselves even richer at the expense of the 99%, while cutting funding to programs that actually help the 99%. What a lovely choice they're forcing the people to make come 2012

absolutetotalfreedom
October 27, 2011 at 12:31 am

Republicans will continue to put the failed economic policies of GWB that caused the mortgage debacle on the present President, but I know most voters are smart enough to see through their smoke and mirrors!

Jay MacDonald
October 24, 2011 at 4:13 pm

Hi, Marcus: I share your outrage, a) that the feds turned the other way and allowed rampant, poorly documented subprime lending to blow up our housing market and b) that the rest of us ended up bailing them out. But I disagree with your conclusion that this doesn't mean we need more regulation. More regulation is exactly what we need, and the Dodd-Frank bill, for all its faults, is a start to at least rein in some of the abusive practices. Inevitably, we're going to need to scrap Gramm-Leach-Bliley and separate banking and investing again. GLB has done more damage to this country than any other single piece of recent legislation save for war funding.

Eyes Wide Open
October 24, 2011 at 11:47 am

I'm more outraged that America's banking giants are being blamed for the problems originally inspired & created by Barney Frank and many of his fellow members of Congress that encouraged ALL banks and mortgage companies to make government-guaranteed (READ: taxpayer-guaranteed) loans to people with poor credit that have, not surprisingly, resulted in numerous foreclosures. Exactly when will Barney Frank and these other politicians be held accountable and how much will they be asked to pay in hush money?

Blame lenders and Wall Street traders all you like...but never forget how FEDERAL legislation and regulations were relaxed by a handful in the past to get this whole process started. How many legislators unfairly received better-than-par mortgage loans from Angelo Mozillo's private operations? This doesn't mean we need more regulation, FYI. As has always been the case, we need prosecution of offenders, including politicians, beginning with Frank!

Wolverine
October 24, 2011 at 10:55 am

Where do I sign up for the "write one check and make your problems go away" deal?

I want in.

Jaime
October 24, 2011 at 10:25 am

Big business wins again. Unless Europe stabilizes we are in for a rough ride for years. Should we help Europe is the broader question..because if all thes sub prime mortagages were not being rolled into packages and being sold globally..they may not have been in such a crisis..am I wrong?