WASHINGTON — A landmark $25 billion settlement with the nation's top mortgage lenders was hailed by government officials Thursday as long-overdue relief for victims of foreclosure abuses. But consumer advocates countered that far too few people will benefit.
The deal will reduce loans for only a fraction of those Americans who owe more than their homes are worth. It will also send checks to others who were improperly foreclosed upon. But the amounts are modest.
It's unclear how much the deal will help struggling homeowners keep their homes or benefit those who have already lost theirs.
About 11 million households are underwater, meaning they owe more than their homes are worth. The settlement would help 1 million of them.
“The total number of dollars is still small compared to the value of the mortgages that are underwater,” said Richard Green, director of the University of Southern California's Lusk Center for Real Estate.
Federal and state officials announced that 49 states joined the settlement with five of the nation's biggest lenders. Oklahoma struck a separate deal with the five banks. Government officials are still negotiating with 14 other lenders to join.
The bulk of the money will go to California and Florida, two of the states hardest hit by the housing crisis and the ones with the most underwater homeowners. The two states stand to receive roughly 75 percent of the settlement funds.
Of the five major lenders, Bank of America will pay the most to borrowers: nearly $8.6 billion. Wells Fargo will pay about $4.3 billion, JPMorgan Chase roughly $4.2 billion, Citigroup about $1.8 billion and Ally Financial $200 million. The banks will also pay state and federal governments about $5.5 billion.
The settlement ends a painful chapter of the financial crisis, when home values sank and millions edged toward foreclosure. Many companies pro
The deal requires the banks to reduce loans for about 1 million households that are at risk of foreclosure. The lenders also will send $2,000 each to about 750,000 Americans who were improperly foreclosed upon from 2008 through 2011. The banks will have three years to fulfill terms of the deal.
The states have agreed not to pursue civil charges over the abuses covered by the settlement. Homeowners can still sue lenders on their own, and federal and state authorities can still pursue criminal charges.
The deal, reached after 16 months of contentious negotiations, is subject to approval by a federal judge. It's the biggest settlement involving a single industry since the $206 billion multistate tobacco deal in 1998.
But for many people who lost homes to foreclosure in the past two years, some of them improperly, a check for $2,000 is small consolation.
“Two thousand dollars won't cover my moving costs,” said Brian Duncan, evicted last April from his home in Tempe, Ariz.
Here's a look at what the settlement will and won't do for current and former homeowners:
A: It requires that banks make foreclosure a last resort. And it bars lenders from foreclosing on a homeowner who is being considered for a loan modification. If this worked effectively, “it would help borrowers, lenders, the entire country,” said Ray Brescia, a visiting law professor at Yale University, who has tracked the housing crisis. But he cautioned that it would help only if diligently enforced.
Q: Who's eligible for relief?
A: Those whose loans are owned or guaranteed by private lenders. Roughly half the mortgages in the United States — about 30 million loans — are owned by private lenders. The other half are owned by government-controlled mortgage giants Fannie Mae and Freddie Mac. Homeowners with these mortgages aren't eligible.
Q: Is the settlement fair?
A: The deal forces the five largest mortgage lenders to reduce loans or send checks to nearly 2 million American households. But considering the range and depth of the U.S. housing crisis, the payout amounts to small change for the banks. And only a fraction of people who likely need help will get it.
Q: Will homeowners and states still be able to take action against lenders on their own?
A: Homeowners who get checks will not lose their rights to sue lenders in court. States will be able to criminally charge lenders and servicers who engaged in deceptive or illegal foreclosure practices.