Government officials announced a record $25 billion settlement with the five biggest banks related to foreclosure abuses including "robo-signing" of documents.
The deal is the largest multi-state settlement since the Tobacco Settlement in 1998, the Department of Justice said. Among the money allocated will be $1.5 billion distributed nationwide to about 750,000 borrowers who lost their homes to foreclosure.
Attorney General Eric Holder said the deal by 49 state attorneys general, who worked late into the hours of last night, does not preclude states from pursuing their own suits against the banks.
Holder announced further terms of the deal would be on the website, NationalMortgageSettlement.com, and residents of the states involved should visit the sites of their respective attorneys general.
Department of Housing and Urban Development Secretary Shaun Donovan said the settlement holds banks accountable for abuses against homeowners which "continued long after people got the keys to their new home."
"No more lost paperwork, no more excuses, no more rhetoric," Donovan said.
Donovan said the investigation comprised at least 15,000 hours of reviewing thousands of files of Federal Housing Adminstration insured loans.
The Department of Justice held a press conference this morning to announce an agreement. New York and California were among the last holdouts but they both joined the settlement.
For the past year, President Obama has advocated for a mortgage relief plan with the five biggest mortgage servicers, Bank of America, JPMorgan Chase, Wells Fargo and Ally Financial, to settle an investigation of foreclosure abuses. Evidence of robo-signing foreclosure documents began to show in 2010 during a record national wave of foreclosed homes.
Earlier versions of the deal would have given about 1 million U.S. homeowners who are underwater on their mortgages relief of as much as $20,000 in principal owed, and those who were foreclosed would receive several thousand dollars. The deal would apply to loans that were not sold to mortgage guarantors Fannie Mae and Freddie Mac.
Several states had previously agreed to a $19 billion settlement that would be used for national mortgage relief. The deal was reported to designate $17 billion to pay for principal reductions and other relief for up to one million borrowers behind in payments but owe more than their houses are currently worth, the New York Times reported.
However, those settlements would change depending on the number of homeowners between Jan. 1, 2008, and Dec. 31, 2011 who accepted the offer. Homeowners who participate in the settlement would still have the right to sue the banks, according to Patrick Madigan, the Iowa assistant attorney general, the New York Times reported.
New York State's attorney general Eric Schneiderman and California's attorney general Kamala Harris had previously said the settlement terms were not adequate. Schneiderman reportedly hopes to investigate the root causes of the financial collapse and Harris wants stronger measures to benefit individual homeowners.
Homeowner advocates had also criticized the reported deal, saying it would provide little relief to the most troubled homeowners.
"What the country and the housing market needs is a bold and broad fix - not broad immunity for banks' criminal behavior," George Goehl, executive director of community organizing group National People's Action, said in a statement. "Any settlement that is just about robo-signing should only release claims on robo-signing and nothing more. It should fix the servicing system and it should provide real relief to struggling underwater homeowners and those who have lost their homes."
The housing market has remained in a slump across the nation. The S&P/Case-Shiller 20-city index through November showed home values fell 3.7 percent from the previous year.
In January, the Federal Reserve's Federal Open Market Committee announced it expects to keep federal funds rate at zero to 1/4 percent at least through 2014, saying the housing sector remained depressed. The federal funds rate is the rate at which banks lend to each other overnight.
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