Bank of America, JPMorgan Chase, Citibank, Wells Fargo, and Ally Financial- the five largest American mortgage lenders- have agreed to make significant changes to their industry practices.
Multiple factors have been cited for the financial crisis that began in 2008 and led to millions of home foreclosures, but the crisis has been blamed, in part, on the mortgage companies. Deceptive practices on the part of mortgage lenders are partly responsible for the upswing in bad mortgage debt and mortgage companies have agreed to make changes to business procedures and offer settlements to victims.
As part of the settlement between the banks and U.S. states, the mortgage industry has agreed to pay a financial settlement to those affected by its deceptive practices. The settlement would apply to private mortgages obtained between 2008 and 2011 (excluding government- sponsored mortgage companies such as Fannie Mae and Freddie Mac). The deal is not yet finalized, but it could be as much as $25 billion and it represents the largest industry settlement with the states/public since the tobacco industry deal in 1998.
Another part of the deal focuses on present mortgages that are in risk of foreclosure. This provision would make it easier for homeowners about to lose their residence to restructure their loans, with extended terms, lower interest rates, and lower payments. Some homeowners could even get a reduction in the principal amount of their mortgage loan, potentially reducing the loan amount below the value of the home, thereby creating home equity.
President Obama is likely to mention the settlement as part of his State of the Union address Tuesday. The president would like to see finalization on the deal as soon as possible, even though some members of his own party have criticized the plan for not going far enough and not penalizing mortgage lenders more harshly.
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