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The biggest U.S. mortgage lenders, including Bank of America Corp. (NYSE: BAC), finally reached a $25 billion mortgage settlement to help homeowners - but the banks still face years of legal battles and billions of dollars in costs.
The provisions to the mortgage settlement include:
- $5 billion total in cash penalties, payable to borrowers, states, and the federal government.
- $20 billion in additional aid, through reducing homeowners' loan balances, and refinancing for underwater homeowners who are current on their loans.
Bank of America Price
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Bank of America will pay an additional $1 billion to settle claims that it inflated appraisal prices from 2003-2009.
The multi-billion dollar mortgage settlement ends state and federal investigations into improper foreclosure procedures (like robo-signing), but banks can still get hit with criminal enforcement actions due to lending practices and mortgage-related securities.
"It's a big check with narrow immunity," Paul Miller, an analyst with FBR Capital Markets and a former Federal Reserve examiner, told Bloomberg News. "You get the state attorneys general off your back, but you're not getting immunity from securitizations, which could come with their own steep cost down the road."
Why the $25 Billion Mortgage Settlement is Just the Start
The five main players in the mortgage settlement are Bank of America, JPMorgan Chase & Co. (NYSE: JPM), Wells Fargo & Co. (NYSE: WFC), Citigroup Inc. (NYSE: C), and Ally Financial Inc. These five banks handle payments for 55% of all outstanding home loans, according to Inside Mortgage Finance.
In order to get the deal rushed through after 16 months of negotiations, the banks opted for a broad mortgage settlement that kept them liable for other misconduct.
"Because of the narrow nature and the fact that the banks didn't get the widespread assurances they were seeking, this was mostly meaningless," David Lykken of Mortgage Banking Solutions told Bloomberg.
The other liabilities include packaging bad loans into securities and allowing billions of dollars in investments to fuel a market vehicle designed to collapse. The mortgage settlement also won't prevent states from pursuing claims regarding banks' database use to conduct foreclosures.
New York Attorney General Eric Schneiderman is determined to hold big banks accountable. He filed a lawsuit Feb. 3 against Bank of America, JPMorgan, and Wells Fargo for fraudulent use of the Mortgage Electronic Registration Systems, or MERS. Schneiderman claims use of the mortgage-registering database sped up the process of bundling bad mortgages into securities.
"The conduct that led to the crash is still fair game," Schneiderman told The Washington Post. "I'm confident the releases are narrow enough so our investigation into misconduct should produce more significant relief going forward."
U.S. President Barack Obama pledged support in his State of the Union address Jan. 24. He announced the creation of a mortgage crisis unit to investigate the real estate lending actions of big banks.
Be Wary of a BAC Rally
Bank of America and the other firms aren't likely to see a big hit to earnings with this deal. Institutions have marked down their balance sheets to account for reducing loan balances.
Financial stocks rallied after the mortgage settlement news broke. BAC rose 4%, continuing its 45% climb for 2012.
But the uncertainty surrounding the remaining liability, and how much it'll continue to cost them, will put downward pressure on share prices this year.
Further investigations and settlement costs could exceed the amount banks have earmarked, and Bank of America is rumored to have the most exposure to mortgage-related legal fallout.
Banking analyst Richard Bove from Rochdale Securities LLC told Bloomberg that banks could still face quarterly legal fees of up to $2 billion.
"What we're going to see for the next five to seven years is these lawsuits going through court after court," said Bove.
The five biggest lenders have already racked up about $72 billion in faulty mortgage-related costs, with Bank of America paying the most.
BAC was down 1.22% to $8.08 by 1 p.m. Friday.
News and Related Story Links:
- Money Morning:
Romney Avoids Nevada's Housing Market Problems with a Tactic That Could Work - for Now - Money Morning:
The Housing Market is Finally Bottoming - Here's How to Play It - Bloomberg News:
$25B Mortgage Deal Doesn't Let Banks Off Hook - The Washington Post:
Schneiderman: Settlement deal a `small' but `significant' step towards real accountability
I am so sick of hearing how "bad' these banks are for doing these alleged "dirty deeds".
We all seem to be missing the point here, if these so called "offended and mistreated homeowners" had done some due dliligence on there own maybe they wouldn' tbe in the spot their in!
Seems to me if you pay your mortgage like the rest of us do then there wouldn't of been a problem.
I f the banks are such bad acts, where would we go to purchase loans to buy these opulent palaces that many know they can't affors?
The banks wouldn't turn to a spell checker that's for sure, they will leave that up to you.
Wow, Really Peter? Unbelievably ignorant, arrogant, and snobby.
Peter,
Glad you are doing okay. I lived within my means & did all the right things. I owned my home for 15 years. We wanted to remodel a bit and contacted my lender (Countrywide). We refinanced and made the improvements, still within my ability to pay. My company 'downsized' in 2007 and rather than laying off a 'valuable' employee, gave me 20 hours a week. Working this plus 2 part-time jobs still could not make the note, pay the bills and put food on the table. Countrywide (later Bank of America) played shell games with refinancing (told this is the program -take it or leave it) and I found myself in an even worse situation, eventually losing my home. I'm still saddled with the mortgage fall out and will have to go from a 700 FICO to filing bankruptcy.
I suppose it's rather easy for one who has not walked a mile in these moccasins to sit in his "opulent palace" and throw spit-balls at something you have really no knowledge of or experience in. I truly wish you have an interesting life…
Peter — I did everything right. I worked for a big bank and relied on their professionalism and expertise within the mortgage co. to do right by me (as a fist time home buyer I educated myself but apparently not enough). I ended up with a mortgage that was more than half my monthly income. I did NOT buy a home that was too expensive, but rather I was advised to get a 2nd mortgage, to avoid PMI, and put less down, while being assured that my monthly payment was within my budget. WRONG! In hindsight I realize the mortgage area was hiring warm bodies that knew nothing but how to plug in numbers to a computer.
Happycat, why was this 2nd mortgage bad for you…Did it not save you monthly MI?…secondly, you needed a mortgage company to tell you what your budget was?
Peter, truly speaking from your ass. It sounds like you stll live with mommy. Otherwise, you would not make such ignorant remarks. Try growing up and living in the real world with the rest of us. People make choices out of desperation and to be misled by the banks and mortgage companies that count on a person to fail. Now rather than lower a payment temporarily and keep families in their homes, these banks would rather have abandonded and desheveled properties on their books. It's was a win win for the banks. Now they can sell the same house twice, collect PMI and come out ahead.
How did you arrive at the conclusion that Peter lives with her mom? Your comment is not based on any fact. What desperate choice did someone make to BUY a house? Couldn't they have rented. What incentive does a mortgage company have to make a loan they know is going to fail?
Your chances of being apoepvrd for a short sale are slim if you are current on mortgage payments. The lender isn't going to approve a short sale just because your home has lost value. The lender will insist on some sort of financial basis disclosure from you before considering allowing a short sale. If you have other sizeable personal assets, they won't approve you, and will expect you to pay off the deficiency. Of course, you can cease making payments and head for foreclosure, and that will raise havoc with your credit rating. Unfortunately, so will a short sale.In the event of a foreclosure or short sale, you can expect to be denied future mortgages for a period of from three to five years.
I realize some homeowners didn't do what they were supposed to. Here's my situation. I applied for the modification. did EVERY thing I was supposed to. they lost my paperwork over SIX times and I had to continuously refile for over one year. I also made my payments each month but I later found out, and I have their accounting record to prove this, that my mortgage payments were posted as "Misc" therefore, it "appeared" that I was not making payments. So tell me, where is my money I paid? I have proof. Why were my payments not posted to my principal, etc? And 8 days after BAC told me my status was not in foreclosure, I was ok to resume as normal, my HOUSE WAS AUCTIONED! I found out it was auctioned by finding a door hanger on my front door after work one day. Is this fair????
That's the problem. These people, and it's just not a handful, can't pay them. Do you think they did this on purpose? Yes, everyone wants to be homeless. OMG! I cannot believe that message was even posted.
The underhanded rich get richer and the working class gets thrown in the middle trying to climb their way out. They pay the brunt of the misdeeds.
I am seeing a trend here, looks like whenever BOA is starting to go up or a good news about it..these so called "Financial experts " jump in and fart these kind of articles..
@this price BOA is like a dream run for many, so say whatever you want to,
I am saving this article lets see what are you going to say next month :)
Millions lost their jobs in the last few years, including myself, so it's a little hard to pay our mortgage on time sparky.
It's sad to see the property owners recover so much now when they benefited immensely in good times. Non- owners of property aren't getting any breaks in this economy! Where's the justice? Many defaulted property owners have sat on their properties for over a year without making any payments on their mortgages, property taxes or maintenance and now are going to get compensated for that kind of behavior? When you buy a piece of property, since when are you guaranteed that the property will go up in value? Many prorperty owners have struggled to keep their mortgage payments current in these bad times and are not getting compensated.
It is also sad when someone borrows a substantial amount of money from a trusting collegue, and it is never repaid; never acknowledged; never an attempt made? Life just isn't fair, is it?
I trust BAC to have better lawyers than New York City and especially the State of California, King of all Blackmailers. They know what they're paying for. The banks are off the hook for everything but CRIMINAL activity, and we all know why the mortgage securities didn't pay off — the housing market crashed. Fat chance Eric or Kahalla can prove the banks conspired to make that happen.
I've had a BoA checking account for 5 years until one day I was charged $5 transaction fee by BoA for checking my debit card balance at a foreign ATM machine. Just checking my balance, NOT making a withdrawal. It was the straw that broke the camel's back. Since then, my financial energy has been focused on nothing but getting my money back 10,000 times over, focused on making money off this obnoxious, fee-rip-off zombie bank. So far, that $5 rip-off fee has already cost BoA and its shareholders $21,000, and I'm not done yet.
No matter how much the banks may pay, you can be sure that none of their officers will ever be charged criminally. And the banks will be allowed to increase fees enough to offset any of their fines. They aren't paying those lobbyists to sit still and allow them to suffer losses.
After the deals that were made,…..the pockets that were filled,…..the plundering of investment accounts,etc,etc. I just really hate the big banks. If a business in your home town did business this way, Im sure they would be run out of town. The intire concept of 'to big to fail" is the very essence of fraud, extortion and theft. But what really makes me mad is the fact that nothing has changed. When banks, certain exchanges and our own government conspire to suppress the price of silver,…….I wanta hit somebody with a brick.
Bank of America came to my aid after countrywide stuck it to me with a prime loan,Bank of America gave me a 90 dollar loan modifaction.with that i now can fill my gas tank with gas at 4.00 dollars a gallon.but i am glad that the tax payers helped the banks when they needed help.
Ive been layed off for 8months worked for 40 yrs never been layed off in that time always payed my bills never ask any buddy for help for any thing now Im trying to get my mortgage company to help me and all they do is give me the run around for last 7 months and foreclosure is the end result and are tax dollars back the loans we should be able to get arbation to keep are homes and if we dont they should not back them loans. banks cant lose they still get their money and were homeless Its not right are goverment lets them get a way with it just like every thing else are oil prices all they have to say when your gets over 50 dollars a barrel will do are own oil prices go down but theirs to many greedy people that is are goverment crooks
How is it the bank officials that perpetrated this fraud are not being charged with federal crimes. Give us just one perp shot with B of A presidents in hand cuffs.
Who's getting paid to negotiate those "settlements" when those guys should be in jail.