A landmark $25 billion settlement over foreclosure abuses will allow large banks to resolve one piece of their mortgage-related problems. But it still leaves them exposed to a wide range of lawsuits and other claims related to the housing crisis.
While the agreement among 49 states and the nation’s five largest mortgage lenders settles a number of civil violations related to the servicing of mortgages, it doesn’t prevent state and federal authorities from filing criminal actions over related activities.
And banks will still face a slew of lawsuits and investor requests to buy back defective loans that had been packaged into securities, a major expense on their bottom lines in recent years.
“The settlement leaves open the possibility of future claims in excess of this settlement on securitization issues,” said analyst Ed Mills of FBR Capital Markets & Co.
Nevertheless, the settlement caps months of negotiation and represents a concerted effort to address the foreclosure crisis, which continues to drag on home prices.
The banks joining the settlement with state attorneys general and federal officials are Bank of America Corp. , Wells Fargo & Co., JPMorgan Chase & Co., Citigroup Inc and Ally Financial.
The deal releases the banks from civil government claims over faulty foreclosures and mishandling of requests for loan modifications.
Bank of America, which acquired subprime lender Countrywide Financial in 2008, will pay the lion’s share of the agreement’s cost: up to $11.8 billion.
Bank of America shares closed up 0.6 percent at $8.18. Wells Fargo fell 0.2 percent, JPMorgan Chase lost 1.1 percent and Citigroup fell 1.7 percent.
Gary Townsend, chief executive of Hill-Townsend Capital, which invests in banks, said the deal is a positive in that it allows the banks to put one more issue behind them.
The agreement doesn’t impede a task force launched last month by the Obama administration to investigate the banks’ packaging of loans into securities, a major source of investor losses in the collapse of the nation’s housing boom.
“The banks are getting very limited immunity,” New York Attorney General Eric Schneiderman, who is leading the mortgage-backed securities task force, told a news conference.
The settlement will not stop investigations or legal action against the banks over misconduct that led to the housing crisis.
Schneiderman will be able to continue a separate lawsuit against the banks for their use of the mortgage registry MERS in allegedly deceptive practices.
“On multiple fronts, we will continue to investigate the mortgage crisis, and ensure that justice and accountability prevail,” he said.
The U.S. Securities and Exchange Commission is also probing residential mortgage-backed securities activities.
SEC enforcement director Robert Khuzami told a news conference last month that the agency has already reviewed 25 million pages of documents on related investigations.
Banks still face billions of dollars in claims from investors to buy back soured mortgage securities issued during the housing boom. Bank of America last year reached an $8.5 billion settlement with large investors such as BlackRock Inc. who bought Countrywide bonds, but that agreement remains tied up in court.
In addition, banks still face securities fraud lawsuits filed by investors who allege they were misled about the quality of the loans they were buying.
The regulator that oversees Fannie Mae and Freddie Mac filed such a suit against 17 large banks last year on behalf of the government-controlled housing finance entities.
In a report last month, a Citigroup analyst said Bank of America alone still faces $12 billion to $32 billion in losses related to investor claims to buy back loans and related securities. The analyst, however, said the cost was manageable for the bank because the money will be doled out over a number of years
Was this article valuable?
Here are more articles you may enjoy.