Banks Propose $5 Billion to Settle Foreclosure

In negotiation talks with state and
federal officials, the nation’s largest banks said they are willing to pay $5
billion to settle an ongoing probe into claims of faulty foreclosure

Bank of America Corp., JPMorgan
Chase & Co., CitiGroup Inc., Wells Fargo & Co., and Ally Financial Inc.
made the offer during negotiation talks this week with state attorneys general
and federal officials. The five bank giants service more than half of mortgages
in the country.

The ongoing settlement
talks stem from an investigation into banks’ foreclosure practices, which
revealed last fall a “robo-signing” scandal in which thousands of foreclosures
were approved without proper reviews.

Since then, state attorneys general, along with other government
agencies, have worked to change banks’ foreclosure procedures and penalize banks
for shoddy practices.

The $5 billion
offer from banks comes at time when state attorneys general are pressing banks
to agree to a special fund that would cover principal write-downs for struggling
home owners, a proposal that banks have strongly opposed. The banks argue that
any plan that would reduce borrowers’ loan balances would just encourage more
home owners to default.

“Banks Said to Offer $5 Billion to Resolve
Probe of Foreclosures,”
Bloomberg (May
11, 2011)

Bankruptcy’s often overlooked tie to homeownership

By  Bradley Markano • May 4th, 2011 • Category: Charts

This report discusses the advantages and disadvantages of bankruptcy for troubled current homeowners and would-be future homeowners.

Chart last updated 5/4/11

2009 2008
Total CA Bankruptcies

Data courtesy of the American Bankruptcy Institute

Homeowners have found it dramatically more difficult to pay their bills during the recent Great Recession than in the past.  A few of the footprints on the path leading to the current homeownership trauma include:

  • the Federal Reserve’s belated decision in August 2004 to put a squeeze on the availability of money (credit)  by increasing  short-term interest rates (the triggering event for the Great Recession);
  • the Wall Street bond market’s massive 2002 to 2006 expansion into the mortgage banking market, which erroneously allowed anyone to qualify for any type of mortgage loan (bringing on a financial crisis concurrent with the onset of the Great Recession); and
  • the constant lobbying effort by mortgage bankers to preempt homeowners’ need to adjust loan balances (cramdowns) during the Great Recession. By 2005, their efforts caused Congress to bar bankruptcy judges from reducing a homeowner’s mortgage balance to match the reduced value of the home securing that mortgage.

In the absence of bankruptcy-ordered cramdowns, the relief available to homeowners in bankruptcy is limited. Nonetheless, bankruptcy is not without advantages for some underwater homeowners. The extent of these advantages is the subject of this report.

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