State attorneys general and federal agencies announced a $25 billion settlement with the country's largest mortgage servicers on Thursday, the largest federal-state civil settlement in history, according to the U.S. Department of Justice.
North Carolina will receive $338 million in the settlement, more than half of which will go toward principal reduction or other help for struggling homeowners, the office of N.C. Attorney General Roy Cooper said.
The long-awaited deal with Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co., Citigroup Inc. and Ally Financial Inc. caps more than a year of negotiations between banks, states and federal agencies.
"This agreement is about helping homeowners who tried to make good but were wronged," Cooper said in a statement. "Just as important, it looks forward by establishing a clear set of rules to make sure foreclosures are done correctly and fairly."
Among those rules are new mortgage servicing standards that include third-party oversight of foreclosure processes and requirements that homeowners be able to appeal denials of mortgage modifications.
Bank of America did not immediately specify the size of its commitment under the settlement, but said it should be a positive for the housing market.
"We believe this settlement will help provide additional support for homeowners who need assistance, brings more certainty to the housing market and aligns to our ongoing commitment to help rebuild our neighborhoods and get the housing market back on track," Bank of America spokesman Dan Frahm said in a statement.
Wells Fargo said its commitment is $5.3 billion. Of that, $3.4 billion will go to principal reduction, short sales and other loan relief, to begin March 1.
"Today's agreement represents a very important step toward restoring confidence in mortgage servicing and stability in the housing market," Wells Fargo Home Mortgage president Mike Heid said in a statement.
"We have already made significant investments in our systems and staffing and are fully committed to implementing the standards as defined. These investments have helped us provide refinance and foreclosure prevention options for our customers."
The bank said it will not record a charge in the short-term for the settlement, since it has already set aside most of the cost.
President Barack Obama praised the settlement in a news conference at the White House on Thursday. He is expected to use the settlement and his administration's mortgage modification programs as a key theme on the campaign trail this year.
Obama also used the press conference to jab at Republicans in Congress, who he accused of inaction that is hurting Americans in failing to pass a recent proposal that would allow more people to refinance at low rates.
"With the help of Democratic and Republican attorneys general from nearly every state in the country, we are able to take a major step on our own," he said. "Banks that were bailed out with taxpayers' dollars will be required to right these wrongs."
Long-term investigation
In fall 2010, attorneys general in all 50 states began investigating reports that large banks were foreclosing on people's homes using fraudulent or incomplete documentation, including using practices like "robosigning."
A Bank of America employee in Texas testified at a deposition hearing that she would regularly sign up to 8,000 documents a month, according to the N.C. attorney general's office.
In October of that year, Bank of America temporarily halted foreclosures in a number of states to review its documentation practices. While the foreclosures soon resumed, the company reported that it began taking the process slower.
That same month Wells Fargo settled with some state attorneys general, agreeing to offer loan modifications to certain adjustable-rate mortgages over the next three years.
In April, both banks entered into a separate agreement with the Office of the Comptroller of the Currency and the Federal Reserve
Among the concessions the banks made in that agreement were adopting a "single point of contact" for borrowers facing foreclosure. It also sparked a third-party foreclosure review process, which is ongoing.
The spectre of a large-scale settlement had hung over Bank of America and other large banks for months, contributing to the uncertainty that forced the Charlotte bank's stock price down nearly 60 percent in 2011.
N.C. Commissioner of Banks Joseph Smith was named the monitor of the settlement, who will ensure that banks meet the terms of the agreement. Smith was unavailable for comment Thursday.
"The N.C. Office of the Commissioner of Banks believes that the final agreement will be an important milestone in bringing some relief to hundreds of thousands of beleaguered homeowners across America and play an important role in contributing some stability to the housing markets," chief deputy commissioner Ray Grace said in a statement.
President Barack Obama Obama nominated Smith to lead the Federal Housing Finance Agency, the chief regulator for Fannie Mae and Freddie Mac in Washington, but Smith withdrew his name in early 2011 after the nomination met resistance from Senate Republicans.
In his role as monitor, Smith will oversee the banks in their mortgage modifications to make sure they are meeting benchmarks.
"I know Joe. He will be tough, he will be thorough, he will be fair," Cooper said in a press conference in Washington on Thursday.
Ongoing legal issues
The settlement does not absolve the banks of liability from other types of claims, including those regarding the securitization of mortgages. It also does not release them from any criminal charges.
The state attorneys general vowed on Thursday to continue to investigate other bank practices.
Banks' financial statements are not expected to be significantly impacted. With time to prepare, they likely have set aside enough money to cover their part.
Bank of America Chief Financial Officer Bruce Thompson says the bank set aside $1.5 billion for litigation expenses in the fourth quarter, primarily regarding this settlement.
Nancy Bush, a bank analyst and contributing editor for SNL Financial, said the deal is more or less what was expected. She said she would like to view it as a turning point, but noted that many other hurdles remain.
"It's one of those milestones - but beyond that, there are other milestones," she said. "Literally every governmental agency in Washington has got its agenda with the banks, and this is one agenda only."
Overall, Bush hopes the deal paves the way for banks to get the "bulk of this stuff behind us in 2012," she said.
"It takes a cloud or a sword hanging over these things away," she said. "But I don't think, from a practical perspective, it does that much enhancing earnings."
Bank analyst Dick Bove of Rochdale Securities criticized the settlement in a research note, saying it breaks the sanctity of property rights and unfairly helps people who did not make payments on their mortgages while not helping people who did make payments.
"The government has taken away the banks' property rights; rights thought by many to be the basis of capitalism," he wrote. Observer staff writer Kirsten Valle Pittman and The (Raleigh) News & Observer contributed.
