Foreclosure Settlement

According to CNNMoney.com report, States have until the close of the business day to agree to the foreclosure deal.

According to Reuters' report, a proposed $25 billion foreclosure settlement to resolve mortgage abuses by top U.S. banks will give states broad authority to punish firms that mistreat borrowers in the future.

Banks have been accused of robo-signing documents and other sloppy paperwork in unlawfully rushing to deal with all the foreclosures during the 2007-2009 financial crisis.

The 5 banks that are involved in the settlement talks are Bank of America Corp, Wells Fargo & Co., JPMorgan Chase & Co, Citigroup Inc. and Ally Financial Inc.

The settlement would set requirements for how the banks conduct foreclosures, provide mortgage refinancing for underwater borrowers -- people who owe more on their mortgages than their homes are worth, fund loan principal reductions and make payments to states and borrowers who lost their homes to foreclosure.

Under the latest draft, about 1 million US homeowners who are "underwater" on their mortgages -- with principal exceeding the home's value -- could be eligible for as much as $20,000 in relief of principal owed, according to US Housing and Urban Development Secretary Shaun Donovan.

In exchange of up to $25B, mortgage servicers in states that agree to the deal would get immunity from future state servicing and originating claims -- although homeowners could pursue claims against banks and states could still pursue criminal investigations, according to reports.

The settlement also states that banks will set up internal quality control groups to assess their mortgage servicing units' compliance with the terms of the agreement. The banks must also turn over quarterly reports to the monitor about servicing complaints.

If the monitor concludes that a servicer is engaged in a pattern of noncompliance, he can undertake a more thorough review, and impose even tougher standards.

If the servicer continues to violate any of the terms, any of the states or a monitoring committee can go to court and seek penalties of up to $1M for the first "uncurred" violation and up to $5 million for a second.

The monitoring committee is comprised of representatives of state attorneys general, the US Justice Department, and the U.S. Department of Housing and Urban Development, who will review the work of the monitor.

The big question is -- how much money would be available to help homeowners, but that depends on how many states agree to the deal. If all 50 states sign on, the mortgage servicing settlement has the potential to offer as much as $25 billion. But without California, the nation's largest state, the value may sink to $17 billion.

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