Will $26 billion settlement from big banks repair US housing market? (+video)
In the short term, the deal between 49 states and five big banks may actually boost foreclosures, some say. In the longer term, it should clear the inventory of homes that depresses prices and help the middle class.
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The agreement was announced Thursday morning at the Department of Justice, which monitored the talks among the states and the banks. All states but Oklahoma have signed on to the settlement deal. The states themselves will distribute the settlement money to their residents.Skip to next paragraph
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Housing and Urban Development Secretary Shaun Donovan called the agreement a “big victory for those who were harmed the most.” Iowa Attorney General Tom Miller, who coordinated the lawsuit, said it gives the banks an opportunity to change, “to do the right thing.” He noted that the effort was bipartisan.
President Obama, speaking at the White House, said, “A lot of families are going to be helped across the country.” He added, “No action by itself will entirely heal the housing market, but settlement is a start.”
Mr. Obama also used the occasion to press Congress to pass legislation that would force banks to refinance mortgages at today’s lower interest rates. The refinancing would be paid for by a fee on the banks. “It will help people save hundreds of dollars a month,” said Obama.
The agreement – involving Bank of America, Wells Fargo, Ally Bank (formerly GMAC), Citibank, and JP Morgan Chase – may not put an end to litigation involving their actions. On Jan. 27, US Attorney General Eric Holder, Mr. Donovan, and other federal and state officials formed a federal group to investigate mortgage fraud and to seek compensation for people who have been wronged. Presumably, the federal officials can use much of the evidence uncovered by the states' attorneys general.
Not all of the agreement's ramifications are positive for homeowners in financial trouble, say foreclosure specialists. For some, it will speed the foreclosure process.
“The settlement should help clear the cloud of uncertainty that’s been hanging over the foreclosure process over the past 16 months, allowing lenders and servicers to more confidently move forward with delayed foreclosures when they have the proper documentation to do so as specified in the settlement,” wrote Daren Blomquist, a vice president of RealtyTrac, an Irvine, Calif., research firm, in an e-mail message.
On the positive side, the settlement also means that lenders and mortgage servicers will likely pursue alternatives to foreclosure – such as loan modifications, short sales (selling the house for less than the value of the mortgage), and deeds in lieu of foreclosure (the borrower gives the house back to the bank) – when they don’t have documentation, Mr. Blomquist says.