US banks agree to $25b in homeowner help

Five big US banks accused of abusive mortgage practices have agreed to a $25 billion (Dh91.9 billion) government settlement that may help roughly one million borrowers but is no magic bullet for the ailing housing market. The record state-federal settlement will spread relief widely in the form of mortgage relief and $2,000 payments to borrowers who lost their homes to foreclosure. It will also release the banks — Bank of America, Wells Fargo, JPMorgan Chase & Co, Citigroup and Ally Financial — from civil government claims over faulty foreclosures and mishandling of requests for loan modifications. But the banks still face a host of other potential government enforcement actions and investor lawsuits related to their packaging of home loans into securities, and other mortgage-related activities. "The bottom line about this settlement, is it's okay, it's a step forward, it's a step in the right direction. But let's not kid ourselves, there's a hell of a lot more that needs to be done," said Ira Rheingold, executive director of the National Association of Consumer Advocates. The housing settlement gives President Barack Obama, as he seeks re-election in November, a chance to show his administration is willing to get tough with big banks to help ordinary Americans survive the pain of the nation's foreclosure crisis. "We have reached a landmark settlement with the nation's largest banks that will speed relief to the hardest hit homeowners in some of the most abusive practices of the mortgage industry and begin to turn the page on an era of recklessness that has left so much damage in its wake," Obama said in a press conference on Thursday. The deal with 49 states and federal agencies, including the US Justice Department and the Department of Housing and Urban Development, is being billed as the largest federal-state settlement ever obtained. It follows more than one year of negotiations after evidence emerged late in 2010 that banks robo-signed thousands of foreclosure documents without properly reviewing paperwork as the financial crisis produced a flood of foreclosures. Home values have dropped 33 per cent from their 2006 peak and nearly 11 million Americans now owe more than their homes are worth. Under the deal, roughly 750,000 borrowers who lost their homes to foreclosure between 2008 and 2011 can expect to receive a $2,000 cash payment. The banks would also provide $17 billion in principal reduction and loan modifications for delinquent borrowers who are facing foreclosure.