States prepared to give banks immunity in mortgage abuse settlement

New York /
Oct.October 18, 2011 06:24 PM

Discussions between the states and banks on mortgage abuses are
nearing an agreement, Reuters reported.

Under a proposed settlement — which could total $25 billion — banks
would get broad legal immunity from state lawsuits in exchange for
refinancing underwater borrowers’ loans, sources said.

The deal could provide some relief to the U.S. housing market and
clear up some uncertainty over banks’ legal exposure to bad mortgages that has hurt
their stock prices, according to Reuters. Banks had been holding out on a
multi-billion-dollar settlement because they wanted broader legal
immunity than state attorneys general were prepared to offer.

While state AGs had originally only considered granting immunity for so-called
“robo-signing” of documents to evict people behind on their mortgages,
in recent days, the state attorneys general agreed to release major
banks from claims that they made legal errors when first originating
the loans, such as approving loans for borrowers without verifying any
income, according to two people familiar with the talks. In exchange,
banks would agree to refinance mortgages for borrowers who are current
on their payments but owe more than their homes are worth,
the sources said.

New York Attorney General Eric Schneiderman was removed as a leader of the panel negotiating with the banks because he opposed possible immunity.
[Reuters]


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