The State of California is poised to receive close to $18 billion as part of a settlement reached between various state attorney generals and the major mortgage lending institutionsin the United States over questionable financial practices. The announcement was made by Kamala Harris, the Golden State Attorney General, on February 9, 2012.
The five major banks involved in the settlement are Ally Financial, Bank of America, Citigroup, JP Morgan Chase, and Wells Fargo. It is important to note that Ally Bank was formerly known as GMAC, while JP Morgan Chase absorbed Washington Mutual, and Wells Fargo assumed the operations and deposits of Wachovia. Ally Bank, Wachovia and Washington Mutual were shut down by government agencies in the wake of the global financial meltdown of late 2008. According to details of the settlement, the homeowners of more than 700,000 homes that were seized in irregular foreclosures by the offending banks will receive checks in the amount of $2,000. The banks are also obligated to reduce the mortgage loan amounts of about a million borrowers across the country. California was one of the hardest-hit states during a period of time when the aforementioned bank engaged in "robo-signing", a nefarious practice that called for bank employees to hastily sign off on foreclosure documents they did not read or know about. The state attorney generals who brought suit against the banks called attention to the seemingly prodigious pace of foreclosures achieved by the banks, a clear sign that something was afoot. By engaging in robo-signing, the banks denied due process from many borrowers who were wrongfully evicted.
State Attorney Harris had previously rejected a settlement offer of just $4 billion back in September of last year. Under the terms of the settlement, Harris has estimated that up to two million mortgage borrowers in California could see significant loan relief soon. The biggest chunk of the settlement will go to borrowers in the counties of Los Angeles and Riverside. The relief will be applied in different manners, from loan modifications to paying off defaulted loans. Some of the fund will also be set aside to repair and improve the conditions of the ghost neighborhoods created by massive foreclosures. The banks will be bound to perform their terms of the settlement by a series of agreements that Harris presented. Failure to abide by these conditions will result in millions of dollars in fines payable directly to the State of California. Details of the implementation have not yet been announced, but Harris promised that state monitors will be appointed.
