US banks agree $25bn mortgage settlement
- 9 February 2012
- From the section Business
Five of the biggest US banks have agreed to provide $25bn (£16bn) to homeowners to settle claims over improper foreclosure practices.
The deal, struck with the US government and most US states, follows allegations of abusive practices by lenders during the country's housing collapse.
The banks involved are Bank of America, Citigroup, Wells Fargo, JP Morgan Chase and Ally Financial.
President Barack Obama said that homeowners had not been treated fairly.
"Many companies that handled these foreclosures didn't give people a fighting chance to hold on to their homes," he said.
"In many cases they didn't even verify that these foreclosures were actually legitimate."
He added that the deal would "speed relief to the hardest hit homeowners in some of the most abusive practices of the mortgage industry", saying this was the first step in turning the page on an "era of recklessness".
The settlement follows a year of wrangling and is the biggest struck between the US government and a single industry since 1998.
The deal will provide $3bn of relief for borrowers who are currently on repayments but who cannot refinance their loans because they are larger than the value of their homes.
It will also give $17bn in principal reductions to those who are behind on their payments and at risk of default, and provide about $2,000 in compensation for those whose homes have been foreclosed.
The five banks involved will contribute relative to their share of the market, and other banks could join the programme, increasing the size of the pot.
By settling, the five banks will avoid civil federal lawsuits. However, they are still exposed to the possibility of litigation from states or individuals.
They will also be subject to tighter regulation of foreclosure practices.
All US states except Oklahoma were involved in the agreement, which will last for three years.
The abuses happened after the US housing bubble burst five years ago.
From 2006, when the American property market peaked, house prices are down by a third and almost 11 million Americans owe more than their homes are worth.
Many companies processing foreclosures - or repossession orders - failed to verify documents.
Some employees signed papers they had not read or used fake signatures to speed up the process, an action dubbed "robo-signing".
Attorney General Eric Holder said the deal represented the "latest step forward in righting the wrongs that led to our nation's housing-market collapse and economic crisis".
Californian borrowers will receive almost half of the $25bn settlement, which does not include mortgages originated by the giant mortgage backers, Fannie Mae and Freddie Mac.
California's Attorney General, Kamala Harris, said she would try to reach a deal with the two lenders.
"I will continue to fight for principal reductions for the approximately 60% of California homeowners whose loans are owned by Fannie Mae and Freddie Mac," she said.