The U.S. government announced Thursday a $25 billion settlement with five of the nation’s largest banks over charges of systemic and widespread mortgage fraud, in what is being billed as the largest-ever deal on such charges, The Huff Post reports.
The settlement could potentially help more than 1 million struggling homeowners, according to government officials. It is the largest multi-state agreement since the nationwide tobacco settlements in 1998.
The bulk of the settlement, about $20 billion, would go to one million American homeowners who would have their mortgage debts reduced or their loans refinanced at a lower interest rate.
According to The New York Times, it also includes $1.5 billion for roughly 750,000 people who lost their homes to foreclosure between 2008 and 2011, with each receiving between $1,500 and $2,000.
Forty-nine states signed on to the deal with Bank of America, Citigroup, JPMorgan Chase, Wells Fargo and Ally Financial. The only remaining holdout is Oklahoma.
“This action, while significant, is only one step of many,” said a spokesperson from the Department of Housing and Urban Development, which served as one of the Obama administration’s lead negotiators on the deal. “But this action is momentous.”
Economists do not expect a big boost for the economy, in part because the banks have three years to distribute the aid. Some experts questioned whether the accord would do much to stabilize the housing market and its glut of millions of foreclosed homes.
President Obama declared the deal the largest federal-state settlement in the nation’s history.
“No compensation, no amount of money, no measure of justice is enough to make it right for a family who’s had their piece of the American dream wrongly taken from them,” he said. “And no action, no matter how meaningful, is going to by itself entirely heal the housing market. But this settlement is a start.”
Under the terms of the deal, those who already lost their home would receive just a small fraction of the money: a one-time cash payment of up to $2,000 as compensation.
“Their entire lives have been turned upside down and changed,” said Philip Robinson, the acting executive director of Civil Justice, a Baltimore-based nonprofit that has worked with thousands of Maryland families fighting for their homes.
But the banks still face a host of other potential government enforcement actions and investor lawsuits related to their packaging of home loans into securities, and other mortgage-related activities, according to Reuters.
“The bottom line about this settlement, is it’s okay, it’s a step forward, it’s a step in the right direction. But let’s not kid ourselves, there’s a hell of a lot more that needs to be done,” said Ira Rheingold, executive director of the National Association of Consumer Advocates.
Homeowners in two states — Florida and California — will reap more than half of the $26 billion settlement, a reflection of the disproportionate number of loans that are delinquent or exceed the value of the underlying property there, government regulators said.
The amounts from individual banks were linked to their share of the servicing market. The biggest, Bank of America, would provide $11.8 billion, followed by $5.4 billion from Wells Fargo, $5.3 billion from JPMorgan Chase, $2.2 billion from Citigroup and $310 million from Ally. Bank of America would contribute an additional $1 billion for Federal Housing Administration loans.