The settlement adds to a series of recently expanded government steps to protect consumers and encourage lenders to refinance homes and modify payment terms for homeowners facing foreclosure.
Obama Administration's Programs
President Barack Obama this month proposed plans to expand loan modifications for delinquent homeowners to include some principal reductions through his administration's Home Affordable Modification Program, or HAMP. Underwater homeowners would be able to refinance at current low interest rates through the Home Affordable Refinance Program, or HARP. Some of the refinancing plans require Congressional approval.
Programs under the administration's Making Home Affordable program had $29.9 billion in aid pledged as of Jan. 30.
Separately, Fannie Mae, the mortgage company under U.S. conservatorship, invited investors to apply for a new program to buy foreclosed homes in bulk to be managed as rental properties, under another program announced by the Federal Housing Finance Agency. The goal of that program is to reduce the inventory of foreclosures while providing rental homes to people who can't qualify to buy or don't want to own.
"No action, no matter how meaningful, is going to by itself entirely heal the housing market," Obama said at an appearance with state attorneys general in Washington today. "But this settlement is a start. And we're going to make sure that the banks live up to their end of the bargain."
There remains a danger that "a wave of foreclosures" may destabilize the housing market, said Susan Wachter, professor of real estate and finance at the University of Pennsylvania's Wharton School.
"The logjam has to be unleashed and it has been -- this will do that," she said. "That's a good thing. But then there needs to be methodical loan-by-loan determination of the best resolution."