WASHINGTON - The nation’s five largest mortgage lenders have agreed to overhaul their industry after deceptive foreclosure practices drove homeowners out of their homes, government officials said yesterday.
A draft settlement between the banks and US states has been sent to state officials for review.
Those who lost their homes to foreclosure probably will not get their homes back or benefit much financially from the settlement, which could be as high as $25 billion. About 750,000 Americans - about half of the households who might be eligible for assistance under the deal - probably will receive checks for about $1,800.
But the agreement could reshape longstanding mortgage lending guidelines and make it easier for those at risk of foreclosure to restructure their loans. And roughly 1 million homeowners could see the size of their mortgage reduced.
Five major banks - Bank of America, JPMorgan Chase, Wells Fargo, Citibank, and Ally Financial - and US state attorneys general could adopt the agreement within weeks, according to two officials briefed on the discussions. They spoke on condition of anonymity because they are not authorized to discuss the agreement publicly.
Last month, Martha Coakley, Massachusetts’ attorney general, sued the five banks for alleged unlawful foreclosures.
“Our pending lawsuit seeks real accountability from the banks and real relief for homeowners.’’ Coakley said yesterday. “We will continue to pursue our lawsuit until we reach those goals, which includes solving the problem of creditors foreclosing illegally here in Massachusetts before they held a mortgage. We also need assurances that eligible Massachusetts borrowers will get relief and consistent treatment from the banks.’’
Last week, Coakley said she would consider the settlement agreement but was worried that the deal wouldn’t do enough to help troubled homeowners in Massachusetts. For example, she worries that the settlement amount would become a maximum level of help that lenders would give homeowners.
The settlement would be the biggest of a single industry since the 1998 multistate tobacco deal. And it would end a painful chapter that grew out of the 2008 financial crisis.
Nearly 8 million Americans have faced foreclosure since the housing bubble burst. In some cases, companies that process mortgages failed to verify the information on foreclosure documents. The worst practices, known collectively as “robo-signing,’’ included employees signing documents they hadn’t read or using fake signatures to sign off on foreclosures.
President Obama is expected to tout the settlement in his State of the Union address tonight. His administration has put pressure on state officials to wrap up a deal more than a year in the making.
But some say the proposed deal doesn’t go far enough. They have argued for a thorough investigation of potentially illegal foreclosure practices before a settlement is hammered out.
New York, Delaware, Nevada, and Massachusetts have argued that banks should not be protected from future civil liability. The deal will not fully release banks from future criminal lawsuits by individual states.