By Mike Colpitts
The U.S. government and 49 states attorneys general have reached a landmark $25-billion agreement over the robo-signing scandal with the 
country’s largest five banks. The unprecedented deal closes a chapter in the nation’s foreclosure crisis, which has cost millions of homeowners their homes. The agreement offers financial relief to some homeowners caught in the crisis, but provides only minimal relief to others.
The deal is the largest federal-state civil settlement ever obtained and requires mortgage servicers to implement new mortgage servicing standards and commit $25 billion to resolve violations of state and federal laws.
The violations include bank servicers’ use of robo-signed affidavits in which bank servicing employees forged signatures on legal paperwork during the course of foreclosures. The deceptive practices also included the failure of banks to offer loan modifications to borrowers, and filing improper documentation in federal bankruptcy court.
Under the terms of the agreement, banks are required to collectively pay $20 billion towards financial relief to borrowers, who have been damaged by foreclosures. At least $10 billion will be dedicated towards reducing mortgage principal for homeowners currently at risk of default and are underwater on their mortgages. Another $3 billion will go towards refinancing mortgages for mortgage holders who are current on their mortgages, but who owe more on their homes than the properties are worth.
As much as another $7 billion will de dedicated to other forms of financial relief, including forbearance of principal for unemployed borrowers, anti-blight government programs to help neighborhoods ravaged by the foreclosure crisis, short sales and transitional assistance for homes that borrowers are no longer able to afford.
The agreement was hailed as a victory by Iowa Attorney General Tom Miller, who launched the 50 state attorneys general investigation into robo-signing by the nation’s biggest banks. “This monitored agreement holds the banks accountable,” said Miller. “It provides badly needed relief to homeowners, and it transforms the mortgage servicing industry so now homeowners will be protected and treated fairly.”
The agreement is the largest federal-state settlement ever obtained and is the result of more than a year long series of investigations by federal agencies, including the Department of Justice, HUD and the HUD Office of the Inspector General (HUD-OIG), state attorneys general and state banking regulators across the U.S.
The group entered into the agreement with the nation’s five largest mortgage servicers: Bank of America Corporation, JPMorgan Chase & Co., Wells Fargo & Company, Citigroup Inc., and Ally Financial Inc. (formerly GMAC).
After months of negotiating with all 50 states, only Oklahoma was the only hold-out to the deal.
“This agreement, the largest joint federal-state settlement ever obtained is the result of unprecedented coordination among enforcement agencies throughout the government,” said U.S. Attorney General Eric Holder. “It holds mortgage servicers accountable for abusive practices and requires them to commit more than $20 billion towards financial relief for consumers.”