$10B deal near in mortgage abuses

Pact with regulators would end banks’ sweeping review of loan practices

By Jessica Silver-Greenberg
New York Times

Posted: Monday, Dec. 31, 2012

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DOJ moving slowly on finding Countrywide victims

The U.S. Department of Justice is moving slower than it had hoped on finding minority borrowers who were discriminated against by Countrywide, the Wall Street Journal reported Monday.

The department settled with Bank of America, which bought the subprime lender in 2008, for $335 million in December 2011, resolving claims that Countrywide steered black and Hispanic borrowers into loans with higher interest rates and fees. It was the largest fair-lending settlement in history.

Bank of America said at the time that it had discontinued Countrywide’s improper practices, and said Bank of America policies were not at issue.

The $335 million was set aside to compensate the more than 200,000 victims of the alleged discrimination. The department hired Rust Consulting to track them down and ultimately administer the payments. It was hoped the first letters would go out in the summer of 2012.

But it took until j ust last month for those to be sent, the Department of Justice reported. And the Wall Street Journal says about 10 percent of those have already been sent back undelivered.

The department said at the time that it could take two years for payments to be issued. The Wall Street Journal says officials hoped it could be done sooner, but now aren’t hopeful that will happen. A Department of Justice spokesman told the Journal that the agency still expects to meet the two-year goal. Andrew Dunn

Banking regulators are close to a $10 billion settlement with 14 banks that would end the government’s efforts to hold lenders responsible for foreclosure abuses like faulty paperwork and excessive fees that may have led to evictions, according to people with knowledge of the discussions.

Under the settlement, a significant amount of the money, $3.75 billion, would go to people who have already lost their homes, making it potentially more generous to former homeowners than a far-reaching pact in February between state attorneys general and five large banks. That set aside $1.5 billion in cash relief for Americans.

The same banks in that settlement – JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Ally Financial – are included in the current negotiations.

Most of the relief in both agreements is meant for people who are struggling to stay in their homes and need the banks to reduce their payments or lower the amount of principal they owe.

The $10 billion pact would be the latest in a series of settlements that regulators and law enforcement officials have reached with banks to hold them accountable for their role in the 2008 financial crisis that sent the housing market into the deepest slump since the Great Depression. As of early 2012, 4 million Americans had been foreclosed upon since the beginning of 2007, and a huge amount of abandoned homes swamped many states, including California, Florida and Arizona.

Federal agencies like the Securities and Exchange Commission and the Justice Department are continuing to pursue the banks for their packaging and sale of troubled mortgage securities that imploded during the financial crisis.

Housing advocates were largely unaware of the latest rounds of secret talks, which have been occurring for roughly a month. But some have criticized the government for not dealing more harshly with bankers in light of their lax standards for making loans and packaging them as investments, as well as their problems with modifying troubled loans and processing foreclosures.

A deal could be reached by the end of the week between the 14 banks and the nation’s top banking regulators, led by the Office of the Comptroller of the Currency, four people with knowledge of the negotiations said. It was unclear how many current and former homeowners would receive money or when it would be distributed.

Told on Sunday night of the imminent settlement, Lynn Drysdale, a lawyer at Jacksonville Area Legal Aid and a former co-chairwoman of the National Association of Consumer Advocates, said: “It’s certainly a victory for consumers and could help entire neighborhoods. But the devil, as they say, is in the details, and for those people who have had to totally uproot their lives because of eviction it may still not be enough.”

In recent weeks within the upper echelons of the comptroller’s office, pressure was mounting to negotiate a banner settlement with the banks, according to people with knowledge of the matter. The reason: Some within the agency had started to realize that a mandatory review of millions of bank loans was not yielding meaningful examples of the banks wrongfully evicting homeowners who were current on their payments or making partial payments, according to the people.

Representatives of banking regulators did not return calls for comment.

The biggest action against the banks for foreclosure-related abuses has been the $26 billion settlement between the five largest mortgage servicers and the state attorneys general, Justice Department and the Department of Housing and Urban Development. That deal cleared allegations that arose in 2010 that bank employees were churning daily through hundreds of documents used in foreclosure proceedings without properly reviewing them for accuracy.

Under the terms of the settlement being negotiated, $6 billion would come from banks to be used for relief for homeowners, including reducing their principal, helping them refinance and donating abandoned homes, the people said.

The proposed settlement would also halt a separate sweeping review of more than 4 million loan files that the comptroller’s office and the Federal Reserve required the banks undertake as part of a consent order in April 2011.

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