TOM HUDSON, NIGHTLY BUSINESS REPORT ANCHOR: After more
than a year of negotiations Susie, state attorneys general are now close to
a deal with the nation’s five biggest banks over foreclosure abuses like
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Yes Tom and robo-signing happened when bank workers signed
off on foreclosures without first checking the supporting documents. Over
40 states have signed onto the deal, but California and New York are among
the hold outs. Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC),
Citigroup (NYSE:C), Ally Financial and JPMorgan Chase (NYSE:JPM) could pay
an estimated $25 billion to put robo-signing claims to rest.
HUDSON: Once that happens, what will it mean for a U.S. housing
market that is still struggling to find a bottom? Darren Gersh begins our
reporting from Washington.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Up to now, most
of the efforts to help underwater homeowners have focused on reducing their
interest payments. But consumer advocates like Ira Rheingold hope the robo-
signing settlement will focus action on the real problem — reducing the
debt burden for homeowners who owe more than their homes are worth.
IRA RHEINGOLD, EXEC. DIR., NATIONAL ASSN OF CONSUMER ADVOCATES: My
hope is that, once we begin to see that principal reduction actually makes
a difference, that these homeowners who could have been in default are no
longer in default and make their payments, it will move some of the actors
in our marketplace who are being unbelievably recalcitrant in terms of
principal reduction, in terms of allowing homeowners to save their homes
will move in that direction.
GERSH: The biggest piece of the robo-signing settlement is aimed at
principal reduction. Some $17 billion is expected to be set aside to reduce
the amount that homeowners owe their banks. The deal will also offer a
check for roughly $1,700 to victims of robo-signing. There will be some
money to help borrowers refinance and the settlement should set clear rules
on the foreclosure process moving forward. While $25 billion is a start, it
is a small sum compared to the 12.5 million mortgages that Realtytrac says
are underwater. But Wharton Professor Susan Wachter says the settlement
could provide a way for banks to head off another tidal wave of
SUSAN WACHTER, PROF., THE WHARTON SCHOOL: It’s hard to say it’s a
good deal. It’s a heavily negotiated deal on both sides. And what’s
really a good deal about it is, in fact, we can find stability in the
housing market. That will be good for banks. That will be good for the
homeowners who are underwater, and that will be good for the overall
GERSH: If nothing else, the settlement is expected to formally put
an end to robo-signing. That’s when bank employees OKd foreclosures without
properly checking documents. The settlement sets clear rules on how and
when banks can take a homeowner’s house.
RHEINGOLD: Can you move somebody into foreclosure when they are in
the middle of a loan modification? How are you going to document it?
What do you need to prove that in fact you are entitled to foreclose? So
a lot of that area that has been very broken, where banks have just, time
and time again, treated consumers and homeowners unfairly, hopefully, that
will be remedied going forward.
GERSH: A lot of foreclosures have been on hold while this settlement
was being hammered out. And some analysts worry banks may soon be playing
catch up and that could flood the market with deeply discounted distress
sales. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.