US banks agree $25bn mortgage settlement
Five of the biggest US banks have agreed to provide $25bn in assistance to homeowners to settle claims over improper foreclosure practices.
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| Bank of America is among those involved in the settlement deal |
The deal, struck with the US government and most US states, follows allegations of abusive practices by lenders during the country's housing collapse.
The banks involved are Bank of America, Citigroup, Wells Fargo, JP Morgan Chase and Ally Financial.
President Barack Obama said that homeowners were not treated fairly.
"Many companies that handled these foreclosures didn't give people a fighting chance to hold on to their homes," Mr Obama said.
"In many cases they didn't even verify that these foreclosures were actually legitimate."
Settlement terms
The settlement follows a year of wrangling and is the biggest struck between the US government and a single industry since 1998.
The deal will cut loan payments for victims and provide compensation.
Homeowners will each receive $2,000.
The abuses happened after the US housing bubble burst five years ago.
Many companies processing foreclosures - or repossession orders - failed to verify documents.
Some employees signed papers they had not read or used fake signatures to speed up the process, an action dubbed "robo-signing".
By settling, the five banks will avoid civil lawsuits.
All US states except Oklahoma were involved in the agreement.
Attorney General Eric Holder said the deal represented the "latest step forward in righting the wrongs that led to our nation's housing-market collapse and economic crisis."
Californian borrowers will recieve almost half of the $25bn settlement, which does not include mortgages originated by the giant mortgage backers, Fannie Mae and Freddie Mac, which together make up the bulk of home loans in the US.
California's Attorney General, Kamala Harris, said she would try to reach a deal with the two lenders.
She said: "I will continue to fight for principal reductions for the approximately 60% of California homeowners whose loans are owned by Fannie Mae and Freddie Mac."
Analysis
This deal is significant because it is likely to help as many as 2 million
American households and it could help to reshape mortgage lending practices.
But this by no means solves all of America's housing woes. Critics say this
deal may prove more help to the banks than to struggling home-owners and the
collapsed housing market.
For one, the banks can now put this behind them without a deeper
investigation into any wrong-doing. They have already set aside money to pay for
the settlement.
Meanwhile, borrowers who lost their homes to wrongful foreclosure are
unlikely to get them back.
And this deal does nothing to help the one in four borrowers who are
struggling with negative equity and who have continued to repay their mortgages
on time.
This is a step in the right direction but there is still much more work to
rehabilitate America's housing market.
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