By Accommodation Times (www.accommodationtimes.com)
Soon after details of a multibillion-dollar foreclosure settlement became public, banks and state attorneys general outlined the expected financial impact of the deal. The states that saw their housing markets hardest hit during the financial crisis stand to benefit the most.
The accounting in the settlement is somewhat confusing. The much-quoted $25 billion figure includes $17 billion that banks must spend on a variety of programs to help beleaguered borrowers. Banks will receive credits for each dollar spent. “Sometimes they get a dollar for dollar credit, sometimes they get 45 cents on the dollar, sometimes they get 10 cents on the dollar,” Iowa Attorney General Tom Miller explained during a press conference. “The benefit to homeowners on the full dollar amount is $32 billion.” In addition, the deal includes $3 billion dedicated to refinancing loans and $5 billion to be paid to federal and state governments.
Using these figures, the settlement totals closer to $40 billion. California will receive up to $18 billion — a large proportion of the overall settlement and far more than the estimated $4 billion in relief that the state was set to receive when California Attorney General Kamala Harris walked away from negotiations in September 2011.
Harris insisted on “more relief for the most distressed homeowners, meaningful enforcement, and the ability of California and other states to pursue investigations into misconduct.”
Miller said California gets an “extraordinary amount” of homeowner relief. “That’s one of the things that amazed us … how much [of a] problem there is in California,” he said.
Andrew Ketterer, former Maine attorney general and previous National Association of Attorneys General president, said it makes sense that California is receiving such a large proportion of the overall settlement, given the state’s population and influence. “If it was 49 states settling, but the state that didn’t settle was California, this thing would look very different,” he said. “There’s got to be enough sugar out there for California to get a share that they’re happy with.”
Florida, another state with a notoriously troubled housing market, also stands to take a substantial share of the settlement. Florida Attorney General Pam Bondi estimated that her state will get $8.4 billion in the deal.
The housing markets in Arizona and Nevada were also hit hard by the crisis. The states stand to receive $1.6 billion and $1.5 billion, respectively.
While much of the money in the settlement is earmarked for things like mortgage modifications, there will also be some leftover for states to use at their own discretion.
“The issue of what happens to money that comes into a state as a result of an action brought by an attorney general has been the subject matter of considerable discussion for decades, particularly more recently where the settlements have gotten bigger and bigger,” Ketterer said.
As many economies around the U.S. continue to struggle, Ketterer suggested that some states might opt to use the funds for projects unrelated to mortgages, like building bridges or reducing taxes.
At the time of publication, Ally Financial Inc. had not released details of its financial commitment. At $11.8 billion, Bank of America Corp. had the largest commitment of the remaining four mortgage servicers named in the settlement. Both Wells Fargo & Co. and JPMorgan Chase & Co. put their commitments at about$5.3 billion.
The monetary component of Citigroup Inc.’s portion of the settlement totals $2.2 billion. Citi said it will adjust its fourth-quarter and full-year 2011 financial results to reflect additional after-tax charges related to the settlement and related mortgage litigation.
While Ketterer said $25 billion is a significant sum, he agreed with comments from Miller and North Carolina Attorney General Roy Cooper, who said that money was not the most important part of the settlement.
“The long-term ramifications of altering and modifying heretofore standard business practices are very significant,” Ketterer said. “Presumably there will be far less of that type of behavior in the future, because now somebody is watching.”