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January 27, 2012 1:49 am
California, home to the largest US property market, spurned an offer of roughly $15bn in lower monthly mortgage payments and reduced loan balances for its residents in talks to settle allegations of mortgage-related misdeeds by leading US banks.
Bank of America had guaranteed California borrowers would receive $8bn in mortgage aid, while Wells Fargo and JPMorgan Chase committed at least $5bn to the state’s distressed homeowners, according to people familiar with the matter, who declined to give exact figures.
California would have received more than half of about $25bn of aid that would be available to borrowers in a nationwide deal under discussion to settle allegations that banks illegally seized homes using faulty documentation.
Deal terms, sent to state attorneys-general late last week after nearly a year of talks between the banks and various states and federal agencies, did not include guaranteed minimums for any other states, people familiar with the matter said. Various state officials said they were unaware of the California offer.
“The proposals offered were inadequate for California because they did not contain the aspects vital for our state: transparency, real relief for distressed homeowners and strong enforcement mechanisms to guarantee accountability,” said Shum Preston, a spokesman for the state attorney-general.
That California had secured guaranteed minimums, when other states have only received estimates on how much money their troubled borrowers would receive, has the potential to further alienate other state officials, who have grumbled about a lack of specifics regarding settlement terms.
Kamala Harris, California attorney-general, left the national deal discussions in September, citing the terms then under discussion as “inadequate”. Her state’s participation is viewed by negotiators as being vital to a final accord, and Ms Harris has been pressured by the Obama administration to be part of a national deal.
Representatives for Bank of America and Wells Fargo declined to comment. JPMorgan has declined to comment on the negotiations, citing the confidentiality of its discussions with regulators. A spokesman for the US Department of Housing and Urban Development, which is leading the federal probe, did not return messages seeking comment.
In 2008, Bank of America agreed to reduce homeowners’ monthly payments by more than $8bn nationwide to resolve predatory lending accusations levelled by numerous state attorneys-general against its then-recently acquired subprime lender, Countrywide Financial. Countrywide was based in California.
Negotiators have had difficulty deciding how much money should flow to distressed borrowers in large states like California and Florida. Property markets in both states have been among the hardest hit in the US by plummeting home values and record-level defaults.
Pam Bondi, Florida’s state legal officer, is a Republican who is part of a small group of state officials negotiating directly with the banks, which include Citigroup and Ally Financial. Some officials said they fear that Florida could also reject a deal and lead other Republican attorneys-general to do the same, if the state felt it was not getting enough money for its borrowers relative to California. Several Republican attorneys-general have said they would reject a deal that includes the mandatory forgiveness of borrowers’ loan balances.
This week, Barack Obama, US president, called for a new government task force to probe alleged frauds involving home loans and mortgage-backed securities. The focus would be on financial institutions.
On Thursday, Jamie Dimon, chief executive of JPMorgan, said the formation of the unit “has a pretty good chance of derailing” the ongoing settlement discussions with state attorneys-general and the Obama administration.
Negotiators have said that the states are operating under an early February deadline to accept the present deal. Though negotiators said their work is complete, the states have missed previous deadlines before.
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