Foreclosure Deal To Help Underwater Homeowners
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From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.
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I'm Audie Cornish.
A landmark $26 billion settlement was announced today. One side, five major banks, on the other, an alliance of 49 state attorneys general. It's the biggest settlement since the 1998 agreement with the tobacco industry.
SIEGEL: This all started when mortgage companies admitted that they had mishandled documents in a rush to process foreclosures. The deal, which was finalized overnight, may help some who lost their homes, but it's targeted more at those homeowners still struggling to hold on. NPR's Yuki Noguchi spoke to attorneys general who negotiated the deal, and she has this report.
YUKI NOGUCHI, BYLINE: Negotiations over this deal began over a year ago. The admission that mortgage companies had robo-signed documents led to a whole of foreclosures across the country, and it brought banks to the bargaining table as they sought to limit their exposure to lawsuits. But negotiating this settlement was anything but hasty.
KAMALA HARRIS: Long.
(SOUNDBITE OF LAUGHTER)
CORNISH: It was a long process.
NOGUCHI: Kamala Harris is California state attorney general. Her state has one of the highest foreclosure rates. And of the 50 state AGs, Harris could and did play the toughest hand. In addition to the national agreement, she negotiated a separate agreement for California to secure an additional $12 billion in refinancing and loan write-down commitments for the state's homeowners.
HARRIS: For me and for my office, this was not some intellectual or political issue. This was about, what can we do to bring real relief to real people who need it right now?
NOGUCHI: Harris says she learned tough lessons from a previous settlement with Bank of America and Countrywide, pledges to help homeowners fell short of expectations. And this time, Harris wanted more money and more teeth to enforce whatever deal she got.
HARRIS: It was important to us that we could ensure that we have something beyond estimates, but actual commitments to California. And that was a big issue, and it was a big part of why we walked away, and then why we came back to the table.
NOGUCHI: California, along with New York and Delaware, were among the last of the states to agree to the deal. Among other things, those state AGs demanded leeway to pursue other investigations and push for stricter enforcement to ensure banks would pay out according to the settlement. Eric Schneiderman is New York attorney general.
ERIC SCHNEIDERMAN: I'm confident that we have the three things we need to effectively pursue the folks who brought down the economy. We have the jurisdiction, we have the resources, and we have the will.
NOGUCHI: So how does the national settlement work? The biggest piece is a guarantee from the banks that they will do $20 billion worth of loan modifications, either reducing the principal on loans or refinancing them. The remaining $5 billion will be paid in cash, part of which will go to compensate homeowners who might have been wrongfully foreclosed upon. William Wheaton is a professor at MIT. He says, this settlement is no panacea for the nation's housing laws.
WILLIAM WHEATON: It's a small Band-aid. At least it's a Band-aid, but it's small.
NOGUCHI: He said it's unclear how many homeowners the deal might help. It depends how banks decide to divvy up the penalties to the many millions of people who will want a piece of the pie. But $20 billion is only enough to address about 5 percent of the problem, he says. And that also raises questions of fairness.
WHEATON: I mean if you're only going to fix 5 or 10 percent of the underwater mortgages, I do not know how these lenders are going to allocate this money.
NOGUCHI: Housing Secretary Shaun Donovan acknowledged that while good, a settlement represents only partial justice.
SECRETARY SHAUN DONOVAN: Now, we all recognize that you cannot undo the pain of this crisis simply by writing a check. But these payments provide victims with welcome and needed relief.
NOGUCHI: Officials, including many of the attorneys general, pledged to take the fight into other venues of the mortgage industry. They noted this settlement does not absolve banks from criminal lawsuits or securities fraud litigation. And they pointed to investigations and lawsuits at all levels that are still ongoing. Yuki Noguchi, NPR News, Washington.
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