Obama, states announce massive settlement with banks over foreclosure process
Economists have identified the housing crisis as one of the biggest drags on the current economic recovery. On Thursday, state and federal officials announced a settlement with the mortgage industry that will provide cash to underwater homeowners and those who lost their homes, but there's debate on whether it will jumpstart the economy.
American homeowners are in line to receive billions of dollars in aid from banks in the wake of a massive settlement between some of the nation's largest mortgage servicers and state and federal authorities.
The deal, announced Thursday morning, will provide at least $26 billion from five banks to be split among homeowners ($17 billion), cash fines to state and federal governments ($5 billion), refinancing ($3 billion) and for the Federal Housing Administration ($1 billion). The settlement, the largest joint state and federal authorities, will close the books on federal and state investigations of improper foreclosures by banking officials. But it does not cover improper actions for packaging and selling mortgages and other issues that may have contributed to the housing bubble.
"It was wrong and it cost more than 4 million families their homes to foreclosures. Even worse, many of these banks that handled these foreclosures didn't give families a fighting chance to keep their homes," President Barack Obama said at a press conference Thursday.
Obama said the settlement will deliver a measure of justice to families who suffered at the hands of banks.
"This settlement is a start. We're going to make sure these banks live up to their end of the bargain," Obama said.
A federal monitor will ensure the banks pay what they agreed to pay. There's a possibility that the settlement will grow. If nine other mortgage servicers join the settlement, which is currently being discussed, the total value of the settlement could grow to $45 billion to be divided among the same parties as the settlement announced Thursday, The New York Times said.
Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial are the five banks who've already agreed to the settlement. The Times said the banks have already earmarked money to pay for the settlement and saw their stock prices rise on Thursday after it was announced.
The deal, through sweeping, will still leave many homeowners without government assistance.
"Roughly one million expected to have their mortgage debt reduced by lenders or able to refinance their homes at lower rates. Another 750,000 people who lost their homes to foreclosure from January 2008 to the end of 2011 will receive checks for about $2,000," The Times wrote.
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