One million homeowners may get mortgage writedowns: U.S.

WASHINGTON Wed Jan 18, 2012 5:22pm EST

Department of Housing and Urban Development Secretary Shaun Donovan speaks during a news conference at the Department of Justice in Washington D.C. December 21, 2011. REUTERS/Benjamin Myers

Department of Housing and Urban Development Secretary Shaun Donovan speaks during a news conference at the Department of Justice in Washington D.C. December 21, 2011.

Credit: Reuters/Benjamin Myers

WASHINGTON (Reuters) - About one million American homeowners would get writedowns in the size of their mortgages under a proposed deal with banks over shady foreclosure practices, U.S. Housing and Urban Development Secretary Shaun Donovan said on Wednesday.

The deal, which could be struck within weeks, would mark the largest cut in the mortgage load since the start of the credit crisis.

"We're very close to a settlement that would both fix the servicing problems, but also help over a million families around the country stay in their homes and get help," Donovan said at a U.S. Conference of Mayors meeting in Washington.

Talks between federal officials, state attorneys general and major banks to resolve allegations of "robo-signing" and other misconduct in foreclosures have dragged into their second year.

Donovan's announcement came the same day that two big regional U.S. banks disclosed they had set aside funds related to mortgage servicing matters, a sign that lenders beyond the five largest mortgage servicers may join the expected settlement.

In exchange for between $20 billion to $25 billion in relief to distressed homeowners, the banks - Bank of America Corp, Wells Fargo & Co, JPMorgan Chase & Co, Citigroup and Ally Financial Inc - will put behind them potential government lawsuits about improper foreclosures and abuses in originating and servicing the loans.

Using Donovan's estimate, the settlement could provide roughly a $20,000 reduction each for the one million borrowers.

Prior administration efforts to jumpstart the housing recovery have fallen short of how they were promoted.

Some states, including California and New York, have criticized negotiators as being too lenient on the banks and suggested the proposed settlement would not provide enough relief to the housing market.

The Obama administration has seen the broader foreclosure settlement as an opportunity to help reach more borrowers struggling financially as the five-year collapse in home prices persists. Currently, banks have granted at-risk borrowers principal reductions on a limited basis.

"Principal reduction can have a substantial impact on the housing market nationally," Donovan said.

With more than a 30 percent decline in home prices since 2007 and a huge number of vacant, foreclosed homes flooding the market, the housing sector has struggled to rebuild itself.

About 22 percent of U.S. homes have negative equity totaling about $750 billion, according to CoreLogic.

Donovan said the deal would be "far and away the largest principal reduction of the crisis" and a number families would also "get direct compensation as a result of the settlement."

LIMITED IMPACT

Any settlement would not apply to mortgages owned by Fannie Mae or Freddie Mac, which together own or guarantee most of the U.S. mortgage market. The regulator that controls the two government-sponsored enterprises has resisted cutting their loans, arguing it would cost U.S. taxpayers more money than other options would.

But lawmakers and top administration officials have pushed for a broader principal reduction program, and this settlement could lay the groundwork for that if Fannie Mae and Freddie Mac are swayed to test it out themselves as an alternative to the costly process of foreclosing on struggling borrowers.

Earlier on Wednesday, House Democrats sought to force the housing regulator, the Federal Housing Finance Agency, to explain its calculations in deciding not to offer principal reductions.

In addition, the Federal Reserve said in a rare 26-page white paper delivered to Congress this month that lawmakers need to do more to stabilize the housing market. But it stopped short of endorsing any plans to have Fannie and Freddie slash borrowers' loan balances.

OBAMA STRATEGY

The Obama administration in coming weeks will step up its efforts to help the ailing housing market by expanding current policies aimed at helping communities plagued by high unemployment and widespread foreclosures, the housing secretary said.

"You will hear a president who is going to be aggressive on housing, on the issues of refinancing and principal write-down," Donovan said.

The White House will lay out a strategy that includes pilot programs to test new initiatives, such as a government plan to convert foreclosures into rentals.

Donovan said the White House is aiming to get more creative in how it contends with the excess inventory of unsold foreclosed homes on the books of government-run Fannie Mae and Freddie Mac.

Regulators have been seeking ways to reduce the number of foreclosed properties by pooling them together for bulk sales to investors. The goal is for investors to then rent them out.

The administration also wants to move ahead with a plan dubbed "Project Rebuild," which is a piece of Obama's American Jobs Act that aims to get construction workers to rehabilitate vacant properties.

Donovan said the $15 billion neighborhood stabilization program would create 200,000 jobs and be used to renovate thousands of vacant homes and properties around the country.

(Reporting By Margaret Chadbourn and Aruna Viswanatha in Washington, D.C. and Rick Rothacker in Charlotte; Editing by Neil Stempleman and Dan Grebler)

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Comments (10)
Harry079 wrote:
“He said the settlement talks are “very close” to a conclusion”

Oh is that like the talks a “very close” to solving the Greece Crisis?

Jan 18, 2012 3:14pm EST  --  Report as abuse
Autokat wrote:
Ok, people all over the US have been getting “assistance” with their mortgages. Many of which, should have never gotten the loan in the first place. Now there is more “assistance” coming to these and others like them. How about the rest of us? Those of us who did qualify for a mortgage, and have made monthy payments on time, every month. When will we see some “assistance” or buy out of some sort. Are we that stupid? To do the right thing. Pay our bills, make our payments. I am ready to turn it all over and start again. A big house I can not afford, nor intend to pay for. This is exactly what is wrong with America today. Dumb asses dragging us all down to their level, all the time with a hand out looking for something for nothing.

Jan 18, 2012 4:23pm EST  --  Report as abuse
Now that we’ve heard from Napolean Dynamite let’s think about what’s really missing from this report, what’s being offered and to whom.
1) Will the settlement mean that Hells Cargo,$hiti,Bankrupting of America JP Morgue etc. will be protected from individual lawsuits? Answer: Yep.
2) “One million homeowners…” Hmmm what about the 15 million families- yes families who lived in those homes that were stolen by banksters and their drone-loan servicer cronies forging loan documents including the Assignment of Mortgage documents fraudulently transfering inter-state or internationally hundreds of thousands of alleged “Investor Trusts” involving Deutsche Bank alone. Multiply that “One million” number by four or five. What about Bank Fraud, Wire transfer Fraud charges?
What is the point of the Patriot Act if not applicable here?
(Oh yeah never mind.)
The gov’t of Europe and the US are owned by the Financial Corporations indeed there is no difference between them. Andrew Jackson & Thomas Jefferson were right about “standing banks being a greater threat to democracy then standing armies.” Now we have both or will very soon.
As a mortgage doc. analyst I’ve seen forged/fraudulent/ficticious signatures on over half the docs I myself have reviewed.
They “catch” seven knuckle-heads who made 50-60 million? Big deal… .
Until the american people demand a firewall between Ex-Wall St. execs. and the employment in the gov’t of, by and for the sheeple nothing will change. Nothing. Where’s the 7.x Trillion the federal preserve gave out to their strategic partners? Where’s the jail time for the oh yeah I keep forgetting, one of the biggest corporations involved in creating the MERS Corp. was the Veterans Administration covering Freddies fannie and who are among the largest group of homeless victims- yes victims? Answer: American Vets. Yeah that’s right Vietnam, Beirut, Iraq 1.0 and 2.0 and Afghanistan are still on their way home(less).
Until Glass-Steagall is reinstated and the Bank Act is revised Clinton and their ilk will continue destroying the very middle class that makes their obscene profits possible. Don’t believe me? Think about this idea if even a small group of people say 5000 in a given city stopped buying gas in an organized fashion on a predetermined day nothing would happen but if that action were taken nationwide the spit would hit the man.
If 50,000 people were to move their money out of the big tanks & into smaller local credit unions what would happen? They’d eliminate $5.00 charges they spent millions preparing to take from their victims.
Collective action by large organized groups with-holding one months mortgage payment would result in a sea change of Congressional apathy.
Every single national bank is denying the extent of their losses excluding walk aways, defaults that are off the books, foreclosures in process and the houses the banks themselves have abandon and no longer pay local property taxes to the communities that must endure them.
The truth indeed will set you free, and lies will forge your shackles so go head Congress keep lying, go ahead Greece default and resist at least you’ll have your national pride. Go ahead America Chase freedom.

Jan 18, 2012 5:06pm EST  --  Report as abuse
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