State and federal officials on Thursday will announce a landmark settlement with five of the nation’s banks over their flawed and fraudulent foreclosure practices.
The $26 billion deal, which officially will be unveiled at a 10 a.m. Department of Justice news conference, aims to help troubled borrowers by reducing the amount they owe on their mortgages, lowering their interest rates and paying restitution to homeowners who suffered mortgage-related abuses.
Long-running negotiations over the settlement received a major boost Wednesday when California Attorney General Kamala Harris agreed to back the effort after withdrawing her support last fall, according to three people with knowledge of the talks, who spoke on the condition of anonymity because the deal had not been finalized.
One source closely involved in the negotiations said another key holdout, New York Attorney General Eric Schneiderman, also had indicated that he would join the more than 40 states that have backed the proposed settlement. Previously undecided states such as Florida and Massachusetts are also expected to back the agreement, which if finalized would mark the largest industry settlement since a multistate deal with tobacco companies in 1998.
Harris’s office declined to comment Wednesday evening, saying she was still involved in negotiations. Schneiderman’s office did not respond to a request for comment.
The participation of California and New York would mark a key election-year victory for the Obama administration, which has been intent on finalizing an agreement that officials argued would deliver much-needed aid to ailing homeowners. The backing of California and New York also means a much larger settlement than banks otherwise would have been willing to sign.
Barely a month ago, Harris called the pending settlement “insufficient,” saying the relief being offered would not enable enough of her battered state’s homeowners to stay in their homes and would let banks off the legal hook too easily. She returned to the negotiations in an effort to strengthen the terms of the deal.
Schneiderman also has been an outspoken critic of the talks, calling for more investigations before any settlement and insisting that banks not be granted too broad of an immunity for their misdeeds.
Negotiators maintained that they tried to narrowly tailor the legal releases in a way that would allow Schneiderman and others to move forward with investigations of other mortgage abuses.
Late Wednesday, several news organizations were reporting that a deal had been reached. But one official close to the talks said that federal officials were still working out some details. Officials were working to roll out a deal on Thursday but acknowledged that it could be delayed again.
The five banks at the heart of the settlement are Wells Fargo, Bank of America, J.P. Morgan Chase, Ally Financial and Citigroup. The five faced a public uproar in late 2010 when it became clear that the legal paperwork they had filed in numerous foreclosures included flawed and fraudulent documentation. In many cases, because of the way in which loans were hastily packaged and sold to investors, banks had difficulty verifying ownership of the underlying mortgages. Those “robo-signing” violations led to the current talks, which have stretched over more than 500 days.
The pending deal would force the lenders to revamp how they interact with troubled homeowners and would bar them from trying to foreclose on borrowers while simultaneously negotiating mortgage modifications. In addition, firms would have to make sure borrowers have a single point of contact rather than be shuttled to different employees.
Officials say the settlement would also include about $17 billion that would go toward foreclosure-prevention measures, such as lowering the loan balance for borrowers who owe more than their homes are worth. Banks would be given varying “credits” for different ways in which they write off existing debts.
Other provisions would provide for lowering interest rates on homeowners who are current on their loans. In addition, as many as 750,000 borrowers who lost their homes to foreclosure since 2008 would be eligible for payouts of about $2,000 each.