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Last US states agree mortgage settlement with banks

California, New York and others have reportedly given green light to deal that creates bn fund for foreclosure victims

New York and California have agreed to sign the proposed settlement between US states and the nation’s biggest mortgage lenders over foreclosure abuses, according to a source close to the negotiations.

Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial agreed to the settlement – for an estimated bn – for lowering homeowners’ mortgage principal, refinancing, a reserve account and cheques to homeowners. However the banks were seeking releases from further legal liability, which has been one subject of negotiations for the past several days with state attorneys general who wanted to continue investigations.

The settlement grants immunity from civil lawsuits brought by the attorneys general against the lenders over narrowly defined “robo-signing” cases.

The source, who was not authorised to disclose the agreement before an expected announcement, said other states that had been holding out – Delaware, Massachusetts and Nevada – were expected to agree as well.

The source said the agreement would enable authorities to pursue all claims over mortgage-backed securities that collapsed. It would let them use facts from robo-signing claims in securities, insurance and tax fraud cases.

It preserves the lawsuit filed last week by the New York attorney general, Eric Schneiderman, that accuses some banks of deceit and fraud in using an electronic mortgage registry that allegedly put homeowners at a disadvantage in foreclosures.

Schneiderman’s office declined to comment on Wednesday night. New York has about 118,000 “underwater” borrowers whose homes are worth less than their mortgage. They would expect to share 6m as a guaranteed cash payment from the settlement.

California, with more than two million underwater borrowers, would get 0m, Florida would get 0m and Texas 1m.

Most states had already backed the nationwide settlement stemming from abuses that occurred after the housing bubble burst. Many companies that process foreclosures failed to verify documents. Some employees signed papers they hadn’t read or used fake signatures to speed foreclosures – an action known as robo-signing.

The deal would be the biggest involving a single industry since a 1998 multi-state tobacco deal. It would force the five largest mortgage lenders to reduce loans for about a million households. The reduced loans would benefit homeowners who are behind on their payments and owe more than their homes are worth.

The deal includes .7bn in guaranteed cash payments altogether, and estimates of .5bn for payments to victims of wrongful foreclosure, bn from a refinance program and .3bn in homeowner benefits from loan modifications.

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