A look at the massive mortgage settlement
New York State gets $136 million, largest per underwater borrower of any state in the country
The $26 billion settlement reached today between numerous state attorneys general and the country’s five largest mortgage servicers will afford New York State a $136 million settlement, according to a statement from New York Attorney General Eric Schneiderman’s office today. New York’s settlement is the largest per underwater borrower of any state in the nation, and the fourth highest dollar amount of any settlement nationwide, the statement said.
In a speech today, President Barack Obama called the deal a “start,” that “will begin to turn the page on an era of recklessness that has left so much damage in its wake.”
This morning, 49 states agreed to the settlement. The final agreement allocates funds for payments to victims of wrongful foreclosure (between $1,500 and $2,000 in a one-time payout) and for loan modifications, including principal reductions, for some homeowners. It also provides support for legal assistance programs for underwater borrowers. Oklahoma did not agree to the deal and will receive no funds, according to published reports.
Critics have pointed out that the settlement, though touted as one of the largest since the tobacco suit in 1998, puts the bulk of the funds towards principal reductions, which will go to investor-owned properties. The settlement also makes first mortgages the priority, whereas many underwater American homeowners have a second mortgage. “It’s not new money. It’s all soft dollars to the banks,” Paul Miller, an analyst at FBR Capital Markets, told the Wall Street Journal. One blogger said the New York and California AGs, who originally held out for more money, “folded like cheap lawn chairs,” in negotiations.
And, as the Wall Street Journal also explained, the settlement only applies to homeowners who mortgages are serviced by the largest five national lenders: Ally Financial/GMAC Mortgage, Bank of America, Citigroup, JPMorgan Chase and Wells Fargo. There are also “several hurdles” to being granted a principal reduction, the paper said.
Still other critics say that the agreement, though born out of the robo-signing scandal, does not address that grievance, but simply used fraudulent mortgage practices as an excuse to achieve principal reductions for around one million borrowers. “Borrowers, many of whom also acted recklessly, are going to get a financial windfall in the form of up to $20,000 in mortgage principal forgiveness,” railed CNBC real estate reporter Diana Olick.
In the statement, Schneiderman underscored the fact that the settlement does not preclude further suits, including those investigating the so-called MERS abuses, specifically in New York State. MERS, the private national mortgage electronic registry system, allegedly enabled a “wide range of deceptive and fraudulent practices in New York,” according to a suit filed by the AG’s office Feb. 3 against the nation’s major banks.
“On multiple fronts, we will continue to investigate the mortgage crisis that has impacted communities in every corner of this state, and ensure that justice and accountability prevail,” Schneiderman said in today’s statement. — Guelda Voien