(Bloomberg News) Bank of America Corp., JPMorgan Chase & Co. and three other U.S. banks reached a $25 billion settlement with 49 states and the U.S. government to end a probe of abusive foreclosure practices stemming from the collapse of the housing bubble.
The U.S. Justice Department, Department of Housing and Urban Development and state attorneys general today announced the agreement, which was more than 16 months in the making following a move by states to investigate bank foreclosure practices in 2010.
"We need to keep doing everything we can to help homeowners and our economy," President Barack Obama said at the Eisenhower Executive Office Building in Washington, where he was joined by administration officials and attorneys general from some of the states. The "landmark" agreement will "begin to turn the page on an era of recklessness" that led to the housing bubble, he said.
The nation's five largest mortgage servicers -- Bank of America, JPMorgan, Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. -- entered into the settlement. With 49 state attorneys general on board, U.S. Attorney General Eric Holder called the agreement the largest federal-state civil settlement in U.S. history.
Oklahoma entered into a separate agreement worth $18.6 million with the banks and didn't sign the federal settlement, according to a statement from the state's attorney general, Scott Pruitt.
The $25 billion agreement includes $1.5 billion payment to some 750,000 borrowers who lost their homes to foreclosure. About $17 billion will pay for mortgage debt forgiveness, forbearance, short sales and other assistance to homeowners. Servicers will also refinance $3 billion in refinancings to lower homeowners' interest rates.
Bank of America has committed as much as $11.8 billion, including a cash payment of $3.24 billion, according to a government fact sheet. The balance will be applied toward mortgage modifications, principal reductions and other benefits for borrowers. Ally has committed as much as $310 million; Citigroup $2.2 billion; JPMorgan $5.29 billion and Wells Fargo $5.35 billion.
The total figure could grow to $40 billion if the next nine largest mortgage servicers sign on to the agreement, said an administration official who briefed reporters on condition of anonymity in advance of the announcement. In a best-case scenario, if all banks participate fully, the deal could be worth $45 billion to homeowners and people who lost their homes to foreclosure, the official said.
Faulty Documents
The settlement comes more than a year after attorneys general from all 50 states announced an investigation into foreclosure practices following disclosures that banks were using faulty documents to seize homes. A federal website has been set up to provide information on the settlement.