OLYMPIA — A $25 billion agreement reached Thursday between states and the nation’s biggest mortgage lenders should help several thousand Washington homeowners refinance, and thousands more who’ve lost their houses through foreclosure could receive checks for $2,000 each.
The deal, signed by five major banks and all states but Oklahoma, settles claims that lenders routinely signed foreclosure documents without really knowing whether the facts they contained were correct.
In Washington, the deal will be worth in the neighborhood of $648 million, with the bulk of it being money banks will expend in modifying the loans of homeowners.
“Our settlement holds America’s largest banks accountable for harms homeowners suffered from shoddy loan servicing, illegal robo-signing and faulty foreclosure processing,” said state Attorney General Rob McKenna, one of eight attorneys general who led negotiations.
The settlement requires Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial/GMAC to modify loans, pay penalties to state and federal governments and fund programs to assist borrowers and send cash settlements to the foreclosed homeowners.
Of the five major lenders, Bank of America will pay the most to borrowers nationwide: 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.
“This settlement is great news for many homeowners in Washington state who have been struggling to keep the American Dream of homeownership alive,” said Jerry Martin, president of the Snohomish County Camano Association of Realtors. “Literally, thousands of troubled homeowners now have a better chance of receiving loan modifications or reduction of principal balances owed on their mortgages.”
McKenna said the agreement is the biggest consumer financial-protection settlement in U.S. history. It is the largest multistate agreement since the $206 billion tobacco lawsuit settlement in 1998.
But unlike money the state collected in the tobacco suit, funds received through the mortgage settlement must go to homeowner assistance and cannot be used to fill a gap in the state budget, McKenna said. He said he made that point to Gov. Chris Gregoire’s staff and legislative leaders of both political parties when he briefed them on the deal earlier this week.
The cornerstone of the complicated deal is a requirement that the banks find ways to shrink monthly mortgage payments. It might be through buying down the principal on a loan. Or it might be by helping those who owe more on a home than it’s worth — but who nonetheless are up to date with mortgage payments — to refinance. Today, those “underwater” owners can’t qualify for a refinancing of their loan.
The deal requires banks to make foreclosure a last resort. And they can’t foreclose on a homeowner who is being considered for a loan modification.
Roughly $24 million will be paid to people in Washington whose home loans were improperly foreclosed between Jan. 1, 2008, and Dec. 31, 2011. Each would receive a check for about $2,000.
The state will receive $5 million in civil penalties and $45 million for programs that provide counseling and financial assistance to distressed homeowners.
State and federal officials, including President Barack Obama, said the agreement should help stabilize the residential housing market by making it possible for millions of people to keep their homes.
“That’s certainly the hope,” said Glenn Crellin, associate director of research for the Runstad Center for Real Estate Studies at the University of Washington. “It is not a panacea. It is not going to solve all the problems out there. It certainly should cause some folks to think, ‘I can work my way out of this yet.’”
In Washington, about 245,000 mortgages were perceived to be underwater at the end of September 2011, Crellin said.
Only those with loans held by the institutions named in the settlement are potentially eligible for assistance.
Owners of another 76,000 homes were at least 90 days past due on mortgages or in foreclosure at that time, Crellin said.
For those in the business of selling homes, Thursday’s settlement was welcomed, though it’s not expected to jump-start activity.
Affordability through lower prices will bring people back into the market more rapidly than the lawsuit, said Ken Anderson, a director for the Northwest Multiple Listing Services and owner of Coldwell Banker Evergreen Olympic Realty in Olympia.
“The market just needs to heal itself,” he said. “I think what the settlement will do is it will compensate some people who were wronged. And it will help banks put this behind them and get back to doing what we’re used to them doing in normal years.”
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 settlement also ends a separate investigation into Bank of America and Countrywide for inflating appraisals of loans from 2003 through most of 2009. Bank of America acquired Countrywide in 2008.
The deal, reached after 16 months of contentious negotiations, is subject to approval by a federal judge.
Critics note that the settlement will apply only to privately held mortgages and not to those owned by mortgage giants Fannie Mae and Freddie Mac. Banks own about half of all U.S. mortgages, or roughly 30 million loans. Fannie and Freddie own the other half.
Jerry Cornfield: 360-352-8623; firstname.lastname@example.org.
The Associated Press contributed to this report.
Where to learn more
Consumers are advised to check online or call a settlement hotline to see if they will benefit from the mortgage settlement. “Don’t give up. Look into whether or not you’re eligible. We may have more news about other banks in the future as well,” Washington Attorney General Rob McKenna said.
•Washington State Office of the Attorney General: www.atg.wa.gov
National Mortgage Settlement: www.nationalmortgagesettlement.com
Bank of America: 877-488-7814
Wells Fargo: 800-288-3212