Banks Near $25 Billion Mortgage Settlement–WSJ

According to The Wall Street Journal, one of the longest running disputes between the government and financial industry connected to the housing boom collapse may be settled. The scandal of botched foreclosures has plagued five large banks, as they face suits from both the federal and state governments. The problem is so great that it has intervened in the rise in some bank stocks.

The paper reports

Government officials are on the verge of an agreement worth as much as $25 billion with five major banks, capping a yearlong push to settle federal and state probes of alleged foreclosure abuses by lenders.

The deal would represent the largest government-industry settlement since a mammoth, multistate deal with the tobacco industry in 1998.

The five companies which will be involved in the settlement are Bank of America (NYSE: BAC), JPMorgan (NYSE: JPM), Ally Financial, Citigroup (NYSE: C), and Wells Fargo (NYSE: WFC)

The deal does nothing to affect other mortgage related problems which face the largest American financial firms–particularly that they sold institutions mortgage based securities with the knowledge that they were worth much less than their face value.

About the details of the current settlement, WSJ reports

The planned pact would involve $5 billion in cash penalties, payable to troubled borrowers, states and the federal government. That includes $1.5 billion in cash payments to foreclosed borrowers. Individual borrowers are expected to receive around $1,500 each, with the actual amount paid depending on the number of borrowers filing a claim.

The agreement is expected to call on the banks to provide $20 billion in other aid—by cutting loan balances for tens of thousands of homeowners and by refinancing thousands of borrowers who are current on their loans but owe more than their homes are worth.

Officials say the deal will help provide immediate benefits to around one million homeowners, while raising accountability for banks that work with borrowers facing foreclosure. The foreclosure process has been snarled since late 2010, after allegations that banks had serially submitted bogus mortgage documents when attempting to repossess homes from delinquent borrowers.