Sources at Citigroup and Bank of America tell FOX Business that bank officials worked through the weekend and were in close talks with state attorneys general and the Department of Justice to try to wrap up a potential $20 billion settlement that could come as early as this week or next over improper mortgage practices and robosigning.
The would-be settlement involves foreclosure papers that were rubberstamped, allegedly pushing many out of their homes. JPMorgan Chase, Ally Financial and Wells Fargo are also involved in the talks, sources say.
A number of sticking points could still hang up the deal, these sources add.
These bank sources say the Administration at the same time is pressing ahead on sweeping new guidelines for mortgage lenders nationwide which could be part of the deal, possibly one of the biggest overhauls of an industry since the tobacco settlement in 1998.
The Department of Justice did not return calls for comment. Bank of America and Citigroup also did not return calls for comment.
The $20 billion deal is stuck on the legal exposures banks would still face in exchange for agreeing to revamp their mortgage servicing practices and paying the billions of dollars in the settlement. Also hamstringing the talks are states who are balking, such as New York and California, due to misgivings over whether the banks’ conduct has been adequately probed.
The plan is to put the final sum, which could vary from the $20 billion under discussion, into a "monetary relief fund” for mortgage borrowers, a fund that’s somewhat akin to the $20 billion BP oil spill victims’ fund for the disastrous oil spill in the Gulf of Mexico. The banks would give loan modifications according to government guidelines, using this money, say Citi and BofA sources.
"But who will get the loan modifications? What are the standards? No one knows yet, and whether this will be done fairly," says a Citi source. Another question: Not all banks committed improper mortgage practices and/or robosigning to the same degree as others. Will their payments into the fund be prorated according to guilt?
"Good question, it doesn't look like it -- this is a political deal," says a bank official.
Meanwhile, California’s attorney general recently pulled out of the deal, saying it is inadequate because it gives bank officials too much legal immunity for conduct "that has not been properly investigated." California now says it may go it alone to get its own bank deal.
Arizona and Nevada have also taken separate action in suing BofA, according to bank disclosures. And New York’s attorney general also has expressed reservations. Meanwhile, foreclosure fraud class actions against the banks continue to flood in. And fighting has already begun at the state level over the formula for how much each state would get from the relief fund. Federal agencies may want their cut too.
A deal could help restart a clogged foreclosure system that is keeping the housing market down and the economy at stall speed. But how the new relief fund will be run is a sticking point, too.
The government recently shut down a federal program created last year to help homeowners struggling to make mortgage payments. The Emergency Homeowners’ Loan Program (EHLP) spent about half of its $1 billion budget. It had aimed to give jobless homeowners up to $50,000 in zero-interest rate loans for underwater mortgages.
But the government’s poor administration and stiff qualifying rules plagued the EHLP from the start. This program was enacted as part of the Dodd-Frank financial reform law enacted in July 2010. But it didn’t launch until June, due to strict eligibility requirements, and less than half of the intended 30,000 borrowers got assistance.
What happened? Tough income requirements, for one, as the EHLP disqualified people who had landed new jobs after falling behind on their loan payments while being unemployed.
Elizabeth MacDonald joined FOX Business Network (FBN) as stocks editor in September 2007 and is the author of Skirting Heresy: The Life and Times of Margery Kempe (Franciscan Media, June 2014).
Follow Elizabeth MacDonald on Twitter @LizMacDonaldFOX.