States, Banks Negotiate Foreclosure Settlement

Assuming all goes as planned, at least 49 states will have signed on to a broad settlement between the banks and state attorneys general over robo-signing. Troubled homeowners may see some benefit, the banks will get some immunity provisions and the Obama administration is hoping to get some credit for negotiating the deal.

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RENEE MONTAGNE, HOST:

This is MORNING EDITION, from NPR News. I'm Renee Montagne.

STEVE INSKEEP, HOST:

And I'm Steve Inskeep. Good morning.

Let's learn a little more now about the deal between five major banks and the states' attorneys general. They, along with federal officials, all signed off on a $26 billion settlement over the banks' handling of foreclosures. The agreement means some relief for troubled homeowners. It also means the banks will pay a penalty for robo-signing - that is, trying to rush through foreclosures by cutting corners on legal documents.

NPR business correspondent Yuki Noguchi has been following this issue, and joins us now to discuss it.

Hi, Yuki.

YUKI NOGUCHI, BYLINE: Hi, Steve.

INSKEEP: OK. They finally made this announcement after one last marathon round of negotiations that went well into the night. So what is the deal?

NOGUCHI: Well, this morning, you have Obama - administration officials declaring victory for homeowners and for the economy. And the deal requires those five banks to pay billions in penalties. And in exchange, they'll get some pretty broad immunities protecting them from lawsuits regarding the way they originated or handled loans. And as far as those penalties go, the banks will have to pay about $5 billion in cash, and they'll have to write down another $20 billion worth in loan amounts - that is either by reducing the principal or refinancing the loan or restructuring the loan. Plus, there's an extra billion dollars in there to settle a separate claim against a specific mortgage company.

INSKEEP: There we go. We'd the number $25 billion. Then it became $26 billion.

NOGUCHI: Correct.

INSKEEP: Notice the extra billion. Now, as we think about those billions, though, of course they're not going to one person or even a handful of person(ph). We're talking about millions of homeowners who are underwater. They owe more on their home loans than their homes are worth. There's many, many other people who have been foreclosed upon. What does this settlement mean for people?

NOGUCHI: Well, most of the settlement money is going to be directed at those homeowners who are underwater. They - like, as you said, they owe more on their home loans than their homes are worth. And there's about 10 million of those people in the U.S. now. And this is how this would basically work: Banks will get credits for writing off loans, and they will have to write off a total of $17 billion worth of loan amounts in either principal or home equity loans.

INSKEEP: So it's not that people get a check. What they're going to get is less owed on their mortgage.

NOGUCHI: Less owed on their money. And it's not, you know, money out of the bank's pockets. It's, you know, writing down the assets that they own. And then they'll do another $3 billion on top of that in terms of refinancings. So, you know, federal officials are saying it'll help more than a million homeowners, but it really depends on how you divvy up that money. It could be, you know, $20,000 per homeowner, and that gets you to a million homeowners. Or it could mean more for a fewer number of homeowners. One of the criticisms of this deal is that the banks have a lot of discretion in how they're going to, you know, do these deals.

INSKEEP: Just so I understand this: So, most of the money is going to people who are still in their homes, not people who are foreclosed upon.

NOGUCHI: Right. Even though the robo-signing scandal and the, you know, bad foreclosures were how this whole thing got started, the idea here is you want to move forward. You want to help a lot of the underwater homeowners refinance, and that will boost the economy.

INSKEEP: But we have this situation where - I mean, the fundamental complaint was that people were being thrown out of their homes unfairly. These documents were being signed automatically. And if I'm not mistaken, the settlement says they get some cash, but only $2,000, which doesn't seem like...

NOGUCHI: Up to $2,000.

INSKEEP: ...doesn't seem like much compensation for being foreclosed upon.

NOGUCHI: Right. Although you cannot take that money, and apparently you can still sue the banks.

INSKEEP: OK. Yuki, thanks very much.

NOGUCHI: Thank you, Steve.

INSKEEP: NPR's Yuki Noguchi, with details of a settlement between the states' attorneys general, five major banks and the federal government. Twenty-six billion dollars will be paid out as part of that deal.

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