A settlement that could produce up to $25 billion in mortgage relief for homeowners is in doubt after it was rejected by the California attorney general, who said the proposed deal doesn't go far enough.
"We've reviewed the details of the latest settlement proposal from the banks, and we believe it is inadequate for California," said Shum Preston, a spokesman for Attorney General Kamala Harris.
Harris' office had withdrawn from negotiations over the settlement last fall, saying the proposed deal at that time did not go far enough in holding mortgage servicers accountable for past misdeeds or in providing mortgage relief to homeowners. Preston said yesterday that the newest version of the deal still did not measure up in those areas.
The agreement would settle claims over improper foreclosure procedures that gave rise to the robo-signing scandal in late 2010 and other alleged abuses by mortgage servicers in their handling of mortgage loans and loan modifications.
Would provide $20-$25B in mortage relief
It is believed that the newest version of the deal would have the nation's five largest mortgage servicers - Bank of America, Wells Fargo, JPMorgan Chase, Citibank and Ally - agree to put up $20-25 billion in mortgage relief for homeowners in return for immunity for past transgressions. According to the Associated Press, the settlement would have funded principal reductions averaging $20,000 for 1 million underwater homeowners, plus payments of $1,800 to other homeowners who were harmed by deceptive lending practices.
The settlement was being negotiated by representatives of the attorneys general of all 50 states, who initiated a joint investigation after the robo-signing scandal broke, and the U.S. Justice Department. The states took the lead because most mortgage and foreclosure matters fall under state laws.
New York, Delaware also reluctant
In addition to California, both the New York and Delaware attorney generals' have expressed dissatisfaction with the proposed deal, although New York Attorney General Eric Schneiderman has left open the possibility his state may yet join the agreement.
There had been widespread reports that an agreement would be reached this week and possibly announced by President Obama in his State of the Union address this past Tuesday night. However, it is unclear whether the deal can go forward without California, which has the nation's most foreclosures and reportedly would receive approximately half of the total settlement.