Are We Close to Foreclosure Fraud Settlement Deal? Washington Insiders Say Yes

The foreclosure fraud crisis that started in 2010 when five major lenders – along with a host of smaller ones – were accused of widespread fraud, deception, and negligence in foreclosure processing that allegedly led to unethical and/or illegal foreclosures across the nation.

Now, well over a year later, and after several false alarms of a settlement between a coalition of state attorneys-general and the five major lenders at the heart of the case (JPMorgan Chase, Wells Fargo, Bank of America, Citibank, and Ally Financial), a deal may be within striking distance according to Washington insiders.

Naturally, those in the real estate industry who have been following the foreclosure fraud case for the past year are skeptical; after all, the deal was supposedly close to completion on many prior occasions before the coalition of AGs virtually splintered in 2011 over several unpopular components of the deal – including the notion that the deal did not go far enough in punishing the banks for their illicit processes and ensuring that they would not conduct themselves the same way with future home foreclosures.

Since 2012 is an election year, the Obama administration – the impetus behind the meeting of the minds going on in D.C. – is under more pressure than ever to arrange some kind of workable solution. This version of the deal apparently incorporates principal reduction for close to one million borrowers across the country, a move that is much desired by housing advocates and one that could serve as a mini-stimulus – paid for by the banks rather than the taxpayers.

The rest of the details – a $25 billion settlement split amongst the banks – still leaves some housing advocates critical. To them, including California AG Kamala Harris and NY AG Eric Schneiderman, the deal doesn’t do much to create a viable framework to protect against future abuses in the system. Even a principal reduction for some borrowers would not be a punitive measure to the banks, and those who could not stop foreclosure wouldn’t get anything for their troubles.

With that being said, some kind of arrangement will be made between the states and the banks, even if the Obama administration has to engage in heavy arms-twisting behind the scenes with California and New York. Too many foreclosure properties are in the market, driving down prices, for the administration to take anything less than an aggressive stance with their solutions to the housing crisis.