Opening Note: The Right Direction

The banks are by no means off the hook as a result of the settlement.

The recent $25 billion settlement between five of the country’s largest banks, 49 state attorneys general and federal officials over foreclosure abuses is a step in the right direction to help relieve mortgage woes for Americans homeowners.

Still, it may not be enough to push the country beyond the housing crisis that has been a drag on the economy for years.

The banks signing the joint agreement are Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co., Citigroup Inc. and Ally Financial.

Of the attorneys general, Oklahoma Attorney General Scott Pruitt was the lone holdout on the deal. The New York and California AGs initially balked but later came to agreement, according to Reuters.

Pruitt was concerned that the joint settlement was overreaching and would harm consumers. He forged an independent agreement for his state that requires Bank of America, Citigroup, JPMorgan Chase, Wells Fargo and GMAC to pay Oklahoma a total of $18.6 million in compensatory damages to resolve claims of unfair and unlawful practices.

Iowa Attorney General Tom Miller, who led the 16-month investigation, said principal reduction for “underwater” mortgages was one of the biggest obstacles to overcome in the settlement negotiations. The deal commits $3 billion to an underwater mortgage reduction program.

The banks are by no means off the hook as a result of the settlement. They are still subject to state and federal investigations, and are vulnerable to individual and class action lawsuits from homeowners and investors.

As Miller pointed out, “The settlement does not grant any immunity from criminal offenses and will not affect criminal prosecutions. …. The pact also enables state attorneys general and federal agencies to investigate and pursue other aspects of the mortgage crisis, including securities cases.”

Critics say the settlement was too lenient on the banks but the state AGs have indicated they have no intention of decreasing pressure on the mortgage industry. Calling the settlement a “step in the right direction,” Nevada Attorney General Catherine Cortez Masto said her office would continue its “criminal prosecutions and civil investigations of the foreclosure crisis.”

Like many others, Masto has concerns that loans held by mortgage giants Fannie Mae and Freddie Mac weren’t included in the deal. The two federally controlled lenders are opposed to principal reduction. Both Mastro and California Attorney General Kamala Harris promised to keep pursuing Fannie Mae and Freddie Mac.

“I will continue to fight for principal reductions for the approximately 60 percent of California homeowners whose loans are owned by Fannie Mae and Freddie Mac,” Harris said.

Topics California