Reports: Lender Settlement Is Reached, Or Could Be Near

Attorneys general in most states have been working for more than a year on a proposed deal with major mortgage lenders that would address industry abuses and offer help to struggling homeowners facing foreclosure.

While a satisfactory deal has proved elusive, published reports suggest a settlement is close at hand, or has already been reached. The media reports quote souces close to the discussions that were not identified.

In it's report, the New York Times says that a near-final deal would cut mortgages by up to $20,000 for about one million homeowners.

According to the Times, the proposed settlement could total $25 billion, with as much as $17 billion of that in the form of principal reductions. Other reports suggest a slightly larger settlement, which President Obama will annouce during tonight's State of the Union speech.

Debate

One reason the process has taken so long is a fierce argument by consumer groups and some attorneys general that the proposed deal is letting the banks off too easily. They point to illegal measures to foreclose on some loans, as well as the predatory nature of some mortgages to start with, arguing that banks should pay dearly.

Since early 2007 more than 7.5 million homes have entered the foreclosure process, with an estimated 4.8 million borrowers currently at risk. That's an argument others are making to call for a deal now. Even an imperfect settlement, they say, can help a lot of homeowners avoid losing their homes.

That said, a coalition of consumer groups, labor unions and civil rights organizations says pressures for an immediate settlement “must not outweigh the more important need for a settlement appropriate to the vast scale of the laws broken and the harm done.” In a letter last month to federal and state officials involved in the settlement negotiations, the coalition said individuals and institutions that broke laws must pay a price that reflects the seriousness of the violations.

Possible restitution?

In the letter, the groups said any settlement should make loan principal reductions mandatory and include substantial monetary relief in addition to principal reduction, including restitution for borrowers who have already wrongly lost their homes.

Five major mortgage lenders - Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial – are involved in the settlement discussions with the state attorneys general. The Times quotes Iowa Attorney General Tom Miller, who is leading the negotiations, as saying an agreement won't be reached “anytime this week.”