The country’s largest mortgage lenders are nearing the close of negotiations with the Department of Justice (DOJ) over how to handle penalties incurred for improper handling of foreclosures. The DOJ suggested a $20 billion fund created for homeowners who have been mishandled by banks like JPMorgan Chase, Bank of America and Wells Fargo. The lenders countered with a total settlement amount of $5 billion, which was then rejected by the DOJ. Despite the disagreement, industry analysts believe a conclusion will come within the next few weeks as the real estate market continues to weaken and banks are further hampered by federal scrutiny. For more on this continue reading the following article from The Street.
The largest U.S. mortgage lenders are inching toward an agreement with federal and state prosecutors to settle a probe of the industry’s lax foreclosure practices.
Bank executives and law-enforcement officials plan to meet in Washington on Thursday to resume negotiations towards an accord that reforms industry foreclosure procedures, people familiar with the matter said.
While a final agreement remains several weeks away and the terms of the agreement are still in flux, the people said the two sides have been progressing toward a settlement that could ultimately cost the five biggest mortgage companies more than $1 billion each, based on their share of the market.
Bankers and prosecutors have been haggling for months over issues ranging from the size of the fine the industry will pay for its past actions, and its treatment of delinquent borrowers to setting new standards for servicing loans.
A recent spate of negative U.S. economic data has elevated the sense of urgency on both sides to reach an agreement.
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The regulatory and legal scrutiny into the industry’s practices had led banks to delay processing foreclosures, leaving millions of homes in limbo and postponing a recovery in housing prices.
While Bank of America(BAC), JPMorgan Chase(JPM), Wells Fargo(WFC), Citigroup(c) and Ally Financial have not met collectively with Department of Justice officials and state attorneys-general in weeks, individual lenders have remained in frequent dialogue with the prosecutors, the people said.
Earlier this year, law-enforcement officials and bank regulators proposed creating a $20 billion fund that provided restitution to homeowners on whom the banks had wrongly foreclosed.
Industry executives later countered with an all-in settlement of $5 billion, an amount both federal and state prosecutors rejected out of hand.
This week’s meetings will seek to address how the two sides determine each bank’s contribution to the settlement. For instance, fines could be assessed based on a lender’s share of the entire mortgage servicing market, or a subset of that figure that includes only loans in foreclosure.
People familiar with the matter predicted a final agreement could be reached in three to five weeks.
Another sticking point in the negotiations has been some state attorneys’ insistence that lenders reduce foreclosed homeowners’ principal debts.
The banks have argued that such a policy would encourage more borrowers to default on their loans, deepening the housing crisis.
The banks and prosecutors’ offices declined to comment.
This article was republished with permission from The Street.