Mortgage lenders to pay $25B in settlement

In an agreement that could provide some compensation to 1.75 million American families, the nation's five largest mortgage servicers will pay $25 billion to settle state and federal investigations of alleged foreclosure misconduct.

The total includes $1.5 billion that will reimburse 750,000 American families $2,000 each who were improperly foreclosed on between Jan. 1, 2008, and Dec. 31, 2011, by the five lenders: Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial/GMAC. During that time, faulty foreclosure practices such as "robo-signing," in which documents were routinely signed without verification, were prevalent. New Yorkers will receive about $13 million of that amount.

Another $10 billion will be used to reduce the principal of mortgages made by the five banks, and owed by almost 1 million households who are financially "under water" -- owing more than their homes are worth. About $495 million of that amount is expected to be spent in New York.

Another $3 billion of the settlement is to refinance loans at lower interest rates, with about $140 million expected for New York residents.

Homeowners whose loans were sold to Fannie Mae or Freddie Mac, the two giant mortgage finance firms, won't be able to participate.

Government officials said the deal was the largest consumer financial protection settlement in U.S. history.

Home values fell by an average of 12.6 percent in Nassau from the start of the recession through July, and by 21.2 percent in Suffolk, according to sources including the Multiple Listing Service of Long Island.

At Nassau Suffolk Law Services, a nonprofit group based in Hempstead, supervising attorney Mike Wigitow said principal reduction "will help achieve more affordable monthly payments for homeowners." But Carol Yopp, foreclosure prevention manager for Long Island Housing Partnership in Hauppauge, said it was unclear whether underwater homeowners who refinanced and took cash out of their homes for various purposes, such as home improvements, will benefit from the settlement.

In Brentwood Thursday, where state officials offered mortgage counseling, Greg Kowanetz of East Islip called the new settlement insufficient. "It's a slap in the face," said Kowanetz, 55, who said he is about one year behind on his $3,700-a-month mortgage payment. His lender, HSBC, was not a signer of the settlement. He is seeking a modification.

Some predicted the settlement would accomplish little. "There are something like 10 million-plus homes underwater to the tune of half a trillion dollars," Lynn Turner, former chief accounting officer at the Securities and Exchange Commission and a managing director at consulting firm LitiNomics Inc. in Los Angeles told Bloomberg News.

New York State Attorney General Eric Schneiderman, who helped negotiate the settlement among 49 states, the federal government and the banks, said the governments retain their right to bring civil and criminal action over conduct not yet investigated, including possible violations by mortgage lenders of securities and fair-lending laws. "We can go forward with all our investigations into the most egregious misconduct -- the misconduct that blew up the American economy," Schneiderman said in a conference call with reporters.

With Jonathan Starkey

and AP