States nearing settlement with big banks

Major U.S. banks have been under fire by federal and state officials over mortgage abuses, and negotiations are coming to an end after more than a year of investigation and discussion. The officials are looking for large financial institutions to refinance underwater loans to help additional foreclosures from entering the market. In exchange, the banks will receive broader relief from future civil lawsuits regarding mortgage lending practices.

Reuters reported that the possible agreement could cost the banks up to $25 billion in losses, but many states attorneys are more concerned with the immunity from future charges than the monetary compensation. In the beginning of the investigation, states attorneys and federal officials considered offering legal protection to banks for shortcuts taken during foreclosure processes, such as robo-signing of documents, to evict homeowners. But as the negotiations progressed, officials have also agreed to release banks from future claims regarding legal errors that were made during loan originations, including approving loans without verifying borrower income.

In addition, the highest state court in Massachusetts recently ruled that buyers of foreclosed homes that were illegally seized by banks may not be the legal owners of the properties. While the lenders are being investigated for their shoddy foreclosure practices, buyers who purchased homes that were on the market as a result of these lending practices may have no right to ownership and few options to clear their titles, Boston.com reported.

According to the news source, this ruling could potentially leave thousands of homeowners unsure of whether they own their homes, leaving them to either sue the lender who sold the property and botched the foreclosure, or reforeclose on the previous owner. In addition, last winter, the same court upheld a ruling from a lower court that forced major lenders to redo shoddy foreclosures from previous years.

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