New York, California to sign mortgage settlement
New York, California to sign mortgage settlement.
— -- California and New York have agreed to join a federal-state settlement involving alleged deceptive practices by five leading mortgage servicing companies that could reach $25 billion.
New York and California were two of the most prominent holdouts from the settlement, which could be announced as soon as Thursday and has been under discussion for almost a year. As of Monday, more than 40 states had signed on to the deal.
The addition of California, the state with the most foreclosures, means the settlement is more likely to hit the $25 billion mark that has long been reported as the expected total.
As of late Wednesday, negotiations were continuing, said officials close to the talks who requested that they not be named because of the sensitivity of the discussions. Previous forecasts that negotiators were close to announcing a deal did not come true.
The settlement, which would be the biggest for the mortgage servicing industry, is expected to provide:
•About $17 billion for principal reduction for about 1 million borrowers.
•$3 billion to help hundreds of thousands more borrowers refinance into lower interest rate loans.
•$1.35 billion in cash for hundreds of thousands of other borrowers harmed by improper mortgage servicing practices of the five largest servicers.
The servicers involved in the deal are Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial.
Other servicers are likely to join the deal in the future, state officials have said.
A monitor will be appointed to oversee the agreement.
Along with financial costs, the settlement is expected to create what supporters say are the strictest standards to date for how mortgage servicers should treat distressed home loan borrowers in the future.
Negotiations leading up to the settlement followed revelations in 2010 that many foreclosures were not properly carried out.
Support for the settlement by so many states increases chances that it'll be viewed as a win for the state attorneys general.
It also arms the Obama administration with more ammunition for its claims that it's adequately addressing the U.S. foreclosure crisis.
But the settlement also falls far short of fixing all that went wrong in the U.S. mortgage industry, after risky loans were extended to millions who couldn't afford their homes. That helped lead to a collapse in U.S. home prices, which are down an average of 33% nationwide since 2006.
The settlement will not compensate the vast majority of U.S. homeowners who have seen their home values plummet, but kept making payments.
Instead, the bulk of the settlement will help homeowners who are on the brink of foreclosure — but have also continued to make their payments — with principal reductions.
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