(
)
After 16 months of heated negotiations and arm-twisting, state and federal officials did it: They reached an agreement that could bring some financial relief to millions of homeowners whose mortgages are underwater.
The settlement involves five major banks — JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, and Ally Financial — in a $25 billion package over faulty foreclosure practices.
The deal came together last night after New York Attorney General Eric Schneiderman, the most outspoken critic of the proposed deal, finally found an accord he couldn’t refuse. Schneiderman was joined by a second notable holdout — California AG Kamala Harris.
An announcement on the deal is expected this morning in Washington.
It’s not seen as being a cure-all for the housing market, though. “It’s frankly a headline victory for both banks and attorneys general with a modest impact on the housing market,” said Josh Rosner, managing director of investment firm Graham & Co.
“It’s not new money. It’s all soft dollars to the banks,” said Paul Miller, a bank analyst at FBR Capital Markets.
Under the deal, tens of thousands of beleaguered homeowners will be in line to receive up to $17 billion in mortgage modifications.
The pact would also involve around $5 billion in cash penalties, payable to borrowers, states and the federal government. That includes $1.5 billion in cash payments to borrowers who were foreclosed upon between September 2008 and December 2011. Borrowers would receive $1,500 to $2,000 each, depending on the number of borrowers who file a claim.
Banks have been criticized for faulty foreclosure practices, like robo-signing legal documents. They are expected to be shielded from some types of litigation by the settlement.
It’s still unclear what concessions, if any, were made to lasso the outspoken Schneiderman, who had been jousting with banks and fed officials to retain the ability to pursue legal action against banks despite the settlement.
Schneiderman had been haggling for a so-called carve-out deal, under which he could continue to sue Wells Fargo, BofA and JPMorgan over their abuse of electronic mortgage database MERS.
Scheiderman canceled a highly anticipated conference call scheduled for 6 p.m. on Tuesday to criticize the agreement in order to come back to the table .
The banks had vowed not to sign on until Schneiderman withdrew his suit filed last Friday. Sources said Schneiderman’s consent hinged on keeping the MERS suit alive.
The Obama administration views California and New York as central to any accord, especially since President Obama tapped Schneiderman to play a key role in investigating the mortgage mess.
It’s that presidential endorsement that Scheiderman has been wielding to garner better terms for New York state .
Schneiderman’s hope is that being able to pursue his MERS lawsuit will allow New York to recover more for wronged borrowers without taking funds from the $25 billion pot that will be allocated nationwide.