States could get billions from 'Robosigning' banks
States consider the pros and cons of a mortgage settlement with banks.
States are facing a deadline of today to sign onto a deal over abusive foreclosure practices. The settlement, with the nation’s largest banks, would address issues like so-called "robosigning." That’s when bank employees signed off on foreclosures like they were working an assembly line, without properly checking the documentation.
Under the reported details of the deal, banks will pay billions to homeowners who lost their homes to foreclosure. But several of the largest states in the country, including California and New York, have yet to officially sign on.
This deal has been in the works for a year. Banks have been trying to limit their legal liability for "robosigning." Meanwhile, state attorneys general have been trying to get the most financial relief they can for homeowners.
The settlement now in the works would provide as much as $25 billion total. That would work out to somewhere between $1,500 and $2,000 for the average homeowner.
Peter Morici at the University of Maryland has been following these up-and-down settlement talks: "It’s not that the people who were foreclosed on weren’t behind and indeed worthy of losing their homes," he said. "But rather, the procedures and processes were not adhered to and there was gross negligence."
Meanwhile, California and New York have been pushing for more. More financial help for struggling homeowners who are still in their homes, but are underwater on their mortgages. And more leeway to pursue legal action later against the banks.
Reports out this morning say the settlement has been adjusted to meet some of those needs, which is good news for "a lot of relief to homeowners who are behind on their mortgages and facing foreclosure,"Morici said. "Many foreclosures will go forward if this agreement is signed. However, we can expect that some bankers for gross misdeeds may be prosecuted."
Jeremy Hobson: Today is the deadline for states to sign onto a settlement with the nation's largest banks over abusive foreclosure practices. The deal would reportedly force banks to pay billions of dollars to people who lost their homes.
But several states, including New York and California, have yet to officially sign on. To explain what's at stake we're joined live this morning by Marketplace's Mitchell Hartman.
Good morning, Mitchell.
Mitchell Hartman: Hi Jeremy.
Hobson: Well, first just remind us what this settlement is all about.
Hartman: Well, it's about "robosigning," you may remember that term from last year. The banks were caught cutting corners. They didn't check the details of foreclosure filings. Really a whole range of abuses.
Now a deadline's coming up today for states to sign onto a deal that's been worked out to help the homeowners who were foreclosed on, and also homeowners who are behind on their mortgages and are facing foreclosure.
This could amount to as much as $25 billion dollars for well over a million and a half homeowners. That would work out to roughly $2,000 a piece for people who actually lost their home.
Hobson: And Mitchell, why has it gone on so long? These settlement talks, why are they taking so long?
Hartman: Well, in two words: California and New York. Both of their attorneys general, didn't like giving up the possibility of prosecuting bankers later once this whole issue is fully investigated. They also wanted to make sure that the money went to the hardest hit homeowners, and that safeguards are adequate so that the banks don't do this moving forward.
Reports out this morning say the settlement's been spruced up a little more to their liking, so they may be closer to signing on now. Here's Peter Morici from the University of Maryland.
Morici: It tells a lot of relief to homeowners who are behind on their mortgages and facing foreclosure. Many foreclosures will go forward if this agreement is signed. However, we can expect that some bankers for gross misdeeds may be prosecuted.
Hartman: And freeing up the foreclosure mill again of course is why the banks want this to happen. They put a lot of foreclosures on hold and this could let them clear up their balance sheets.
Hobson: All right. We'll watch to see what happens. Marketplace's Mitchell Hartman, Thanks.
Hartman: You're welcome.