The United States hopes it finally has a solution to the housing crisis – a $25 billion solution.
Forty-nine states have teamed up to force big banks to pay up. JP Morgan Chase (NYSE: JPM), Bank of America (NYSE: BAC), Citigroup (NYSE: C), Wells Fargo (NYSE: WFC) and Ally Financial (NYSE: ALLY-PB) have agreed to rectify allegations that each engaged in deceptive lending practices and took illegal shortcuts on the road to foreclosure.
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U.S. Attorney General Eric Holder:
“These failures didn’t just hurt borrowers, who might have been able to afford modified mortgages. They fueled the downward spiral of our economy and of communities nationwide. They eroded faith in our financial system.”
Here’s where the money is going:
- $17 billion is for loan modifications.
- $3 billion for underwater mortgages, (which means the mortgage is more than the house is worth).
- $1.5 billion goes directly to borrowers who already lost their homes through foreclosure.
- And then another $2.5 billion goes to state governments for housing programs.
It took a year-long chaotic battle to get even that, and some housing and homeowner advocates say the agreement is just the first step.
Sarah Ludwig is Co-Director of the Neighborhood Economic Development Advocacy Project:
“What’s absolutely not clear at this point, and I don’t know if the State Attorneys General have clarity on this, is that how an individual homeowner is either underwater on his or her mortgage, or who needs to be refinanced in order to avoid foreclosure, or for people who already lost their homes in foreclosure. How are those dollar amounts going to translate into actual help for homeowners.”
President Obama admits this is just part of the healing process:
“No action, no matter how meaningful, is going to by itself entirely heal the housing market.”
But there are hopes that this will finally loosen housing’s tight grip on the rest of the economy.