Bank Mortgage Settlements Work For More Relief Fund To Consumers
A total of $12.5 billion in settlements may be on the way for borrowers who got mortgages before the housing bust.
As part of settlements with the federal government over their handling of mortgage-backed securities before the housing meltdown, Deutsche Bank and Credit Suisse agreed to pay consumers $4.1 billion and about $2.8 billion, respectively.
In a report that appeared in The Wall Street Journal, the two settlements are the latest penalties in a long-running series between the Justice Department and large banks over their role in deceptively selling billions of dollars of subprime mortgages as safe securities, exacerbating losses for investors nearly a decade ago.
The settlements are notable in part because consumer relief accounts for a greater share of the total fines compared with many previous agreements and consumer advocacy and other nonprofit groups aren't expected to get a piece of the funds.
According to people familiar with the negotiations, the relief funds will be used for loan modifications, similar to the settlement framework between the Justice Department and Goldman Sachs.
Under such loan modification, there is agreement for the forgiveness of certain unpaid mortgage balances and forbearance to struggling borrowers. This includes those who owed more on their mortgage than their home is worth.
However, payments to nonprofits and community groups are not expected to be included in the settlements. This exclusion could mark a turning point for how the consumer-relief portion of mortgage settlements are structured.
Consumer payouts, despite having been a signature piece of most of the crisis-era mortgage settlements, have come under fire. Some consumer advocates and Republicans question the terms of the deals and how successful they have been at actually getting money to the borrowers.
Both Deutsche Bank and Credit Suisse are still ironing out the details of their settlements with the U.S. government.