WASHINGTON (CBSMiami) – After more than a year of negotiations, five major banks will pay approximately $26 billion to American homeowners for the banks roles in foreclosure abuses including the robosigning scandals that ravaged the industry.
Florida attorney general Pam Bondi said based on the terms of the deal, “that we have reached a settlement that provides Floridians with much-needed relief and reforms the mortgage servicing industry.”
Bondi had previously come out against principal reduction being forced on banks as part of the multi-state deal, according to the Orlando Sentinel.
Florida will receive approximately $8.4 billion in relief for Florida homeowners and address future mortgage loan servicing practices.
It will release civil claims related to robo-signing, other foreclosure-related abuses, and loan origination misconduct.
The money will be broken down in Florida as follows:
- Florida borrowers will receive an estimated $7.6 billion in benefits from loan modifications including principal reduction and other direct relief
- Approximately $170 million will be available for cash payments to Florida borrowers who lost their homes to foreclosure from 1/1/2008 to 12/31/2011 and suffered servicing abuse
- The state will receive a direct payment of $350 million.
- The value of refinanced loans to Florida’s underwater borrowers would be an estimated $309 million
Currently, Florida has the nation’s highest foreclosure inventory. Approximately 12 percent of all homes with a mortgage in Florida are in some state of foreclosure. In addition, 17 percent of homeowners in the Sunshine State are 90 days late on their mortgage payments.
Based on the terms of the deal, the five largest mortgage lenders – Bank of America, JP Morgan Chase, Wells Fargo, Citigroup, and Ally Financial – will reduce home loans for roughly one million households. The reduced loans would help homeowners behind on their payments and who owe more than the house is worth.
Plus, another 750,000 Americans would receive checks for roughly $1,800 each. But there is a catch to the settlement. The settlement would apply only to privately held mortgages issued from 2008 to 2011.
The settlement comes after countless abuses banks were guilty of following the housing bubble’s implosion. Several companies, including some based in Florida, failed to verify documents in foreclosures, or had employees sign documents they never read, or used fake signatures to speed up foreclosures.
In addition to the mortgage write-downs and payment, the deal is said to try and fundamentally change mortgage lending guidelines to make it easier for those at risk of foreclosure to make their payments and keep their homes.
The deal breaks down as follows: $17 billion will go towards reducing the principal that homeowners owe on their mortgages; $5 billion will be placed in a reserve account for various state and federal programs; and $3 billion will help homeowners refinance at 5.25 percent.
The settlement will still allow other probes of the banking industry to go forward, including a New York attorney general’s investigation over mortgage securitization and possible misconduct in the packaging and sale of residential mortgage-backed securities, which helped to cause the housing bust.
For more on the settlement, click here.
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