February 9, 2012
SD's share of U.S. mortgage deal: $1.5 billion
California is set to get $18 billion in a historic multi-state deal with the nation’s largest lenders over foreclosure abuses, said the state attorney general’s office on Thursday. Of that amount, San Diego will receive roughly $1.5 billion in the long-awaited settlement that’s second only to the massive tobacco-industry deal struck in the 1990s.
Attorney General Kamala Harris said the money will help hundreds of thousands of troubled and underwater homeowners across the state. Expected relief to California — among the last states on board in the mortgage deal — will come in different forms, including principal reductions, loan refinances, restitution and the chance at short sales.
“It is imperative that we do not give a blank check of immunity to banks for their wrongdoing,” Harris said at a Thursday press conference, where she announced she is appointing a state monitor to oversee the settlement process.
However, banking analyst Dick Bove told CNBC that the deal aimed at helping homeowners will have the opposite effect.
“You are going to be reducing the prices of a lot of houses in the United States where payments are being made because the house next door is seeing the principal balance on the mortgage taken down,” he said.
The settlement amount California will receive represents more than 70 percent of a $25 billion agreement that involves almost all 50 states and the following major banks: Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial, which used to be GMAC.
Harris left negotiations last year after the initial agreement called for California to get $4 billion, which she called an unfair deal to homeowners. Harris, who later rejoined discussions, added that banks at first were reluctant to give principal reductions.
Here’s a breakdown of the $18 billion and how it will be used, quoted from the attorney general’s release to the media Thursday morning:
• More than $12 billion is guaranteed to reduce the principal on loans or offer short sales to approximately 250,000 California homeowners who are underwater on their loans and behind or almost behind in payments.
• $849 million is estimated to be dedicated to refinancing the loans of 28,000 homeowners who are current on their payments but underwater on their loans.
• $279 million will be dedicated to offering restitution to approximately 140,000 California homeowners who were foreclosed upon between 2008 and December 31, 2011.
• $1.1 billion is estimated to be distributed to homeowners for unemployed payment forbearance and transition assistance as well as to communities to repair the blight and devastation left by waves of foreclosures, targeted at 16,000 recent foreclosures.
• $3.5 billion will be dedicated to relieving 32,000 homeowners of unpaid balances remaining when their homes are foreclosed.
• $430 million in costs, fees and penalty payments.
University of San Diego real estate professor Norm Miller said the deal will help some, but not all, homeowners.
“I don’t think this is any panacea that will address the real problems in the housing market,” Miller said. “Most mortgages are held by Fannie Mae and Freddie Mac, but they aren’t affected by this settlement, which is kind of unfair.”
Still, Mark Goldman, a real estate/mortgage professor at SDSU, said this deal doesn’t go far enough.
“A number of people should never have lost their homes or never should have been put into such risky mortgages in the first place. This doesn’t help them out at all. It’s probably a fraction of their moving expenses.”
Harris said the settlement plan will work because for every year the banks do not accomplish the “menu” of goals in the three-year commitment period, the penalties will go higher.
For example, if the participating banks fail to pull off $12 billion in principal reductions in California, Harris said, they will have to pay as much as $800 million to the state. This is a guarantee solely for the state.
“Unlike the larger multistate agreement, which is enforceable in a federal court in Washington, D.C., this payment provision empowers the Attorney General to summon the banks to California state court,” the Attorney General’s office said.
Written by -Lily Leung