Banks Add $20 Bil In Settlement Deals Over Housing Bust

Investor's Business Daily

Banks agreed to another $20 billion in mortgage settlements Monday, putting some legal issues behind them but still not closing the door on future housing bust costs.

Lenders are trying to get past the crisis era of government bailouts and lawsuits. Two mortgage-related settlements involving Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (NYSE:C) and other banks were announced Monday, which was also the deadline for banking giants to submit plans to the Federal Reserve for returning capital to shareholders.

Last year, the Fed let banks start raising or resuming dividend payments. Expectations for another wave of payouts has driven up bank stocks recently. BofA shares have doubled in price in the last year.

Other bank relief came Sunday when global regulators eased so-called Basel III liquidity rules and delayed when they must be fully implemented, lightening banks' regulatory burden. Few banks were able to meet the standards.

Meantime, commercial lending is recovering, and the housing market finally is rebounding.

Big banks' stocks Monday showed small gains and losses.

But the fallout from the last housing bust isn't going away.

The $20 billion in combined settlement payments announced Monday don't resolve other claims, such as a lawsuit the U.S. Attorney's Office filed against BofA last year.

On Friday, the liquidator of three failed federal credit unions sued JPMorgan for mortgage-backed securities sold by Washington Mutual, which the bank bought in the financial crisis.

BofA has already agreed to pay tens of billions of dollars to settle housing-related claims, many of which stem from its acquisition of Countrywide Financial. Last year, BofA and four other lenders settled "robo-signing" charges over improper foreclosure practices for $25 billion.

Under one pact Monday, BofA will pay $11.6 billion to settle claims about the loan origination process at both Countrywide and BofA and complaints that mortgages sold by them didn't meet proper underwriting standards.

BofA will give Fannie Mae (FNMA) $3.55 billion in cash, buy back $6.75 billion in bad mortgages and pay $1.3 billion in fees.

The bank will also sell servicing rights on 2 million home loans worth $306 billion.

Nationstar Mortgage (NSM) will pay $1.3 billion to buy servicing assets, and Walter Investment Management (WAC) will pay $519 million for another package. Nationstar's stock surged 17% while Walter's climbed 8%.

Monday's other settlement for $8.5 billion covered robo-signing foreclosure processing and mortgage servicing claims. It was between the federal government and 10 banks, including BofA, JPMorgan and Citigroup, but may not even resolve the allegations it is supposed to address.

"There is unhappiness all the way around," said banking consultant Bert Ely. "I don't think this is the final word.

He noted consumer advocates are especially upset about the pact and could seek changes. State regulators or the new Consumer Financial Protection Bureau could get involved later too, he added.

The banks will pay $3.3 billion to borrowers whose foreclosures were mishandled and provide $5.2 billion in other assistance, such as loan modifications, to struggling borrowers.

Regulators made the deal because a mortgage review process they established last year wasn't helping borrowers soon enough, underscoring the difficulty in unwinding such claims.

The pact "provides the greatest benefit to consumers subject to unsafe and unsound mortgage servicing and foreclosure practices during the relevant period in a more timely manner than would have occurred under the review process," regulators said in a statement.

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