“This agreement establishes significant new homeowner protections,” Holder said at a press conference. “It also provides substantial financial assistance to victim borrowers.”
The $25 billion agreement includes $5 billion in cash for states to pay for foreclosure-prevention initiatives. About $17 billion will pay for mortgage debt forgiveness, forbearance, short sales and other assistance to homeowners. Servicers will refinance $3 billion in refinancings to lower homeowners’ interest rates and pay about $1.5 billion to homeowners harmed by botched foreclosures.
Officials said the current agreement totals more than $25 billion, and is expected to reach $26 billion in a matter of days.
Total May Grow
The total figure could grow to $40 billion if the next nine largest mortgage servicers sign on to the agreement, said Housing and Urban Development Secretary Shaun Donovan. In a best-case scenario, if all banks participate fully, the deal could be worth $45 billion to homeowners and victims of foreclosure.
The settlement does not prevent state and federal authorities from pursuing criminal cases, Holder said.
“Our investigations revealed disturbing practices,” including pushing borrowers into foreclosure, Holder said. “They fueled the downward spiral of our economy.”
The settlement comes more than a year after attorneys general from all 50 states announced an investigation into foreclosure practices following disclosures that banks were using faulty documents to seize homes. The only state not to agree to the settlement at the time of the announcement was Oklahoma, according to a federal website set up to provide information on the settlement.
Not Punishment
The goal is to not just punish banks responsible for botched foreclosures but repair damaged neighborhoods, Donovan said.
“We all recognize you can’t undo the pain of the crisis by writing a check,” Donovan said. The settlement “forces the banks to clean up their acts.”
