U.S Banks and Government agree to a $25 Billion Settlement

In a landmark agreement, five major US banks, State and Federal Governments made a deal for $25 billion over foreclosure abuses. The five banks namely Bank of America Corp, Wells Fargo & Co, JPMorgan Chase & Co, Citigroup Inc and Ally Financial Inc will now reduce loans for over 1 Million households and will also send $2,000 checks to about 750,000 households that were foreclosed improperly.

Such a huge deal involving one industry has not happened since the 1988 multi-state tobacco deal. Out of the 50 states, 49 of them agreed to the deal amicably except Oklahoma. They came to an agreement on their own.

The deal comes at a crucial time, when the President is seeking re-election and the deal could act in his favor. Especially, the settlement in the public eye appears to be strict action taken by the Government on banks that have rarely been questioned before. What the deal will also do is to try to put the housing sector back on its feet. At this moment it appears to be the biggest weak-link in the economy. The depreciation value of homes is about 33% from 2006 and many homeowners owe more money than their houses are worth.

The settlement was reached not before many various terms and conditions were pronounced. The deal will largely see the State Governments not pressing charges in any law-suits against these banks, but individual consumers are well within their right to do so.

In terms of how the money will be distributed, at least $10 billion will go towards reducing principal amounts for householders who are delinquent and owe more money than their houses are worth (being underwater). $3 Billion will go towards reducing principal of loans that are still being paid by homeowners, but are still underwater. $7 billion is earmarked for various kinds of assistance programs like anti-blight programs, short sales and helping home-owners who are unemployed. $1.5 billion is allocated for making payments to people, whose houses were sold or fore-closed under improper terms. $3.5 billion will be used to repay public money lost due to irregularities and will also fund legal aid and council fees as and when seen necessary by attorney generals.

It is also important to note, if other defaulting servicer’s (up to 9 of them) join in, the package could grow up to $30 billion.

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