Banks Settle #JPM #WFC #BAC

Banks settle foreclosure fraud cases for $26 billion, but MERS lawsuit continues

Posted 2/9/2012 4:31 AM from Daniel Pereira in News Headlines, Banking and Loans, US Markets

Five of the largest banks in the United States and government authorities in all 50 states have reached an agreement about how to settle a massive investigation into flawed and fraudulent foreclosure proceedings.

According to reports from The New York Times  and other sources, Ally Financial, Bank of America ( BAC ), Citigroup ( C ), JPMorgan Chase ( JPM ) and Wells Fargo ( WFC ) agreed to settle a series of lawsuits from both the federal government and the states. The lawsuits covered a wide range of violations, including the use of "robo-signing" to speed the foreclosure process in often fraudulent ways.

Think Progress' Pat Garofalo lays out the basic elements of the settlement here , laying out how much money the banks will pay up ($26 billion), how much of it will go to help beleaguered homeowners ($17 billion) and the number of homeowners who will be aided by the deal (between 1 and 2 million).

Interestingly, New York Attorney General Eric Schneiderman will continue to press his suit against Bank of America, JPMorgan Chase and Wells Fargo over deception and illegal actions in the Mortgage Electronic Registration System database. MERS, as it's usually called, is the central repository of data for every mortgage in the United States; in the last few years, nearly all mortgages in the country were registered with MERS rather than with county offices, saving lenders and borrowers millions of dollars in fees but depriving local governments of vital revenue.

Bloomberg reported  that the banks wanted the MERS lawsuit to be dropped along with the other investigations, but they were apparently thwarted in that effort. In addition, individual lawsuits concerning mortgage and foreclosure fraud will still be allowed to proceed.

Bank of America ticked up slightly following the news, opening almost 2 percent higher before retreating slightly. Citi, JPMorgan and Wells Fargo all slid by about half a percent by noon in New York.

The $26 billion represents a significant settlement, but it clearly won't stagger the banks too much. Together, the four banks mentioned above took in a total profit of $47.6 billion in 2011. It's not as if the banks will be paying the settlements out of pure profits, either; they've all set aside a fair amount of capital to pay for their mistakes. Still it's telling that the banks will be paying just about half of their annual profits to walk away from the foreclosure mess. 

Meanwhile, Housing and Urban Development Secretary Shaun Donovan has said that the housing market in the US remains depressed because of  $700 billion  in negative equity held by US homeowners. To be perfectly clear - that's $700 billion that homeowners owe, mostly to the banks above, over and above the market value of their house.

The $26 billion settlement helps. But it's a long way from healing the grievous wounds left by the crisis and the fraud.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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