Washington — A deal between five major banks and a group of attorneys general — including George Jepsen of Connecticut — could bring $150 million or more to state homeowners who have been victims of foreclosures or the burst of the housing bubble.
The banks involved in the negotiations — the Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial — were accused of “robo-signing” foreclosure documents and other fraudulent conduct and could pay up to $25 billion in the settlement. The money would be disbursed by formula to Connecticut and other states that agree to the deal, Jepsen said.
That could provide the state with millions of dollars to counsel homeowners in financial trouble.
Connecticut could receive millions more in refinancing help for homeowners who are up-to-date on their mortgages but owe more than their homes are worth. Under current regulations, homeowners who are “underwater” can’t refinance their loans.
Mortgages of these “underwater” borrowers could also be decreased by tens of thousands of dollars. But only the mortgages held or serviced by the five banks involved in the negotiations would be eligible for the write-downs.
The refinancing help and write-down of mortgages would be available only to homeowners who borrowed money in 2008 through 2011.
The settlement is the result of 18 months of talks among the U.S. Justice Department, the attorneys general and the five big banks that are responsible for about 65 percent of the privately held mortgages in the United States.
But the deal won’t be of much help to those who have already lost their homes to foreclosure, although some would receive a check for about $1,800 as “rough justice money.”
Jepsen, a member of the negotiating team, traveled to Chicago Monday to discuss the agreement with Housing and Urban Development Secretary Shaun Donovan, Justice Department officials and other Democratic attorney generals. Republican attorneys general were briefed on the “agreement in principle” in a conference call Monday evening.
The timing of a final agreement is unclear. “I don’t want to be premature, but things appear to be moving in the right direction,” Jepsen said Tuesday.
There’s one downside to the deal: Once the agreement is signed, banks are likely to pick up the pace on processing foreclosures, which had slowed during the 18 months of negotiations.
According to the latest survey by the Mortgage Bankers Association, nearly 8 percent of the mortgages in Connecticut are more than 90 days delinquent. That’s close to the national rate, but much lower than other states like California, where the delinquency rate is 18 percent and Florida, where it is 23 percent.
Sen. Richard Blumenthal, D-Conn., Connecticut’s attorney general before he was elected to Congress, was in the original group that initiated the investigation of the banks. He said he hoped the deal helps a lot of homeowners in trouble and helps minimize the expected new wave of foreclosures.
But he said the deal is just “one step” in a process, “not a conclusion.”
“I’m going to continue my efforts on the (Senate) Judiciary Committee to investigate mortgage servicers … and to bring to justice the bankers who may still be pursued,” Blumenthal said.
While Connecticut homeowners may get relief under the deal, New Yorkers won’t.
Last year New York Attorney General Eric Schneiderman left the group of attorneys general pursuing the banks. Schneiderman said his colleagues weren’t tough enough, and he’s conducting his own investigation.
But all New England states have agreed to the terms of the deal, although Massachusetts is looking for more money because its laws give the state more leverage over the banks.