Feb. 7, 2012 — -- Officials from more than 40 states have signed onto a record $25 billion settlement with the five biggest banks related to foreclosure abuses including "robo-signing" of documents.
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.
"This enables us to move forward into the very final stages of remaining work. Federal and state officials, as well as representatives from the banks, continue to address matters that they must complete before finalizing any settlement," Iowa Attorney General Tom Miller said in a statement late Monday.
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. The deal would also provide checks of about $2,000 to roughly 750,000 with lost, foreclosed homes.
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.
California and New York had expressed interest in joining the deal but were the last major holdouts. It was clear late Monday if the states would sign the settlement.
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.