The mountain of mortgage foreclosures these past years led to some sad and surprising findings, especially in the eastern United Sates. If you’ve heard about “robo-signing” or other practices that sound a little wrong (and faceless), you know what the problem is. Banks, dealing with millions of failed mortgages and literally no place to put them, started zapping them through automatic confirmation processes.
When all those foreclosures hit the fan, the legal mess uncovered these practices. In many cases, robo-signing and similar practices violated state laws about how to handle a mortgage. Not only did foreclosures get stuck in court, but lawsuits started piling up against the banks.
Fast-forward to February 6th, and everyone (the federal government, the states, and the banks) finally reached a mortgage settlement agreement. The banks, including Bank of America, Wells Fargo, JPMorgan Chase, and Citigroup, will settle for about $25 billion. The money will eventually find its way to homeowners stuck in foreclosures.
The mortgage deal solves a bunch of problems for local governments, but it doesn’t wipe the board clean for banks. If you’ve followed the foreclosures these past years, you may have noticed how complex the processes sound. Since every state has its own laws about mortgages, there’s still plenty of room for more lawsuits against banks.
This gives the $25 billion mortgage settlement a see-saw effect. On the up side, the money injected into the foreclosure mess will help a lot of homeowners and probably provide some boosts to local economies. On the downside, major investors are too savvy to think all the problems are gone, so they won’t be pumping money back into banks any time soon.