Washington • California and New York, the key holdouts in a long-awaited settlement over foreclosure abuses, moved closer Monday to backing a deal with most other states that would force the five largest mortgage lenders to reduce loans for about 1 million households.
But those states, along with a handful of others, had not joined the settlement by a Monday deadline set by the nation’s state attorneys general. And a deal might not be finalized for days.
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California still has "significant sticking points," but they may be settled in the coming days, said officials with direct knowledge of the negotiations. That represents progress from a few weeks ago, when California Attorney General Kamala Harris called the proposed settlement "inadequate."
The officials spoke on condition they not be identified because they weren’t authorized to discuss the settlement publicly.
Negotiators were working well into Monday night to see if they could persuade more states to join the settlement, an official said. There is growing optimism that California, New York, Delaware, Nevada and a few others will eventually sign on.
Homeowners in states that opt out of the deal wouldn’t share in the settlement money. The money available to homeowners could run as high as $25 billion if all states approve the deal.
Under the deal, the mortgage principal for about 1 million homeowners would be written down by an average of $20,000. An additional 750,000 Americans — about half the households eligible for aid under the deal — would receive about $2,000.
The five lenders — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — have already agreed to the settlement. In settling the charges, the states would agree not to pursue further investigations against the banks in civil court. The deal would not protect the banks from criminal investigations.
The few states that have resisted the deal have expressed concern that it would limit their ability to take action against the banks for any past wrongdoing that turns up later.
California’s backing is particularly crucial. It was among the states hardest hit by the foreclosure crisis. And it has the most residents "underwater" — they owe more on their loan than their home is worth. Without California’s participation, the money available to homeowners nationally would be about $19 billion rather than $25 billion.
The settlement has been toughened in recent days to allow states to pursue lenders who mistreat borrowers in the future. Fines could run as high as $5 million per violation.
David Stevens, CEO of the Mortgage Bankers Association and a former Obama administration housing official, said the deal would ease lending restrictions for new loans and aid homeowners at risk of foreclosure.
Still, several housing and community organizations have complained that the settlement wouldn’t go far enough.
George Goehl of the National People’s Action, a collection of community housing groups, said $25 billion for homeowners would be a "paltry down payment," considering that roughly 11 million homes are underwater by a combined $750 billion.
"Anything less than $300 billion is a win for the 1 percent that lets the banks off too easily and falls short of helping both middle-class families and communities targeted most by big bank fraud," Goehl said.
But if California and New York agree to the deal, other holdouts, including Arizona and Nevada, would likely follow suit.
The deal is subject to approval by a federal judge.
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