Details are still sketchy, but apparently a settlement has been agreed upon between five major banks and a majority of the states' attorneys general.  The settlement involves Bank of America, Wells Fargo, Citigroup, JPMorgan Chase, and Ally Financial and arises out of charges that the banks and their subsidiary servicers used robo-signing and other abuses in processing thousands of foreclosures.

The settlement was announced by lead negotiator, Iowa Attorney General Tom Miller who, according to CNBC said of the deal, "This enables us to move forward into the very final stages of remaining work. Federal and state officials, as well as representatives from the banks, continue to address matters that they must complete before finalizing any settlement," Miller said in a statement released late Monday."

There were no further details available on the Miller's office website and he refused to provide more information to CNBC including the number of states who have signed.  The deadline for reaching an agreement was Monday night, however bright lines in these talks have been fungible in the past.

The agreement has been reported to involve cash in the amount of $25 billion from the banks. $17 billion of which would go toward writing down mortgage principal balances for some 850,000 troubled homeowners.  Of the remainder, $3 billion would go to restitution payments of $1,500 each to borrowers who lost their homes to foreclosure and the rest toward state funds for foreclosure relief. 

CNBC is speculating that 40 states have agreed to participate in the settlement.  Delaware AG Beau Biden was clear in an interview on MSNBC Monday night that his state was not party to it and there is speculation that New York's Eric Schneiderman, head of the President's new mortgage fraud office has not agreed to it either.   California's AG Kamila Harris is the big IF.  She walked away from negotiations four months ago claiming that the settlement did not do enough for homeowners in her state which has led the nation in the number of foreclosures. 

According to Inside Mortgage Finance, Harris recently returned to the table "in exchange for a commitment of a solid dollar amount from the banks" and other sources say that might involve raising the settlement from $19 billion to the $25 billion referenced above. The Wall Street Journal, reported that any special treatment of California would leave other AGs feeling disgruntled, specifically mentioning Florida's Pam Bondi. 

In addition to any cash from the banks, the settlement will include a mandate for new regulations for servicers.  A tentative settlement document was proffered last March that, as most of the standards have since become part of the general discussion about servicing, is probably a good indication of the contents of this part of the final document.  These include:

  • Enforcing firm modification timelines for servicers to meet, including notifications to borrowers of actions on modification requests.
  • Providing a single point of contact for borrowers over the course of the modification process.
  • Requiring a freeze on foreclosures during modification considerations and providing methods for penalties and enforcement.
  • Outlining steps for banks to verify the accuracy of amounts owned and placing limits on fees the banks can charge distressed borrowers.
  • Adopting directives to improve tracking of mortgage notes and chain of title.
  • Increasing supervision of foreclosing law firms and other third-party vendors.

The settlement agreement apparently contains nothing that would preclude the states from continuing to investigate the banks, especially in the case of suspected criminal actions.  It also would do nothing to interfere with suits by individual borrowers against the banks or their servicers.

MND will update this story as more information becomes available.