US reaches 25-billion-dollar housing settlement

Feb 9, 2012, 16:29 GMT

Washington - The United States government and five major banks on Thursday reached a 25-billion-dollar settlement over mismanagement of foreclosure and mortgage practices.

The Justice Department and 49 states made the agreement with the country's five largest mortgage service providers, Bank of America Corporation, JPMorgan Chase & Company, Wells Fargo & Company and Ally Financial Inc.

It is the largest ever civil settlement reached by the government and the states and comes after an 18-month investigation that banks did not follow proper protocol when foreclosing on homes after the collapse of the housing bubble.

'This agreement reflects our commitment - at both the federal and state levels - to ensure justice, and to recover losses, for victims of reckless and abusive mortgage practices,' Attorney General Eric Holder said at a press conference announcing the settlement.

Holder pointed to abusive practices such as borrowers who were pushed into foreclosure rather than being given other options, such as loan modification. Among the practices that had drawn the most outrage was 'robo-signing' in which foreclosure documents were signed en masse without review or simply forged.

'These failures didn't just hurt borrowers who might have been able to afford modified mortgages,' Holder said. 'They fuelled the downward spiral of our economy - and of communities nationwide. They eroded faith in our financial systems. And they punished American taxpayers, who have had to food the bill for foreclosures that could have been avoided.'

The deal is designed to help people affected by the financial crisis, with 20 billion dollars going toward financial relief to borrowers.

Some 10 billion dollars will be used to redue the principal on loans for borrowers who are at risk of losing their homes to foreclosure and another 3 billion will help those who are current on their payments but owe more than their homes are worth.

Another 5 billion dollars will go to governments to establish a fund to pay residents who lost their homes and to reimburse public funds lost due to the banking misconduct.

The government also laid out new rules to hold mortgage firms accountable with additional oversight of foreclosures and new mortgage servicing standards. Among other changes, banks will be required to consider other options, such as refinancing, before proceeding with a home foreclosure.