Big Banks to Pay Big Bucks for Mortgage Fraud: $20 Billion Each

The five largest mortgage lenders in the United States are expected to pay a settlement on claims of foreclosure abuse that may cost each party up $20 billion, according to the Huffington Post, a drastic increase from the $5 million tab the lenders previously anticipated in May.

Associate U.S. Attorney General Tom Perrelli believes that Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial understand they need to pay the increased settlement as a result of the federal investigation that started in the fall of 2010. The investigation was a response to reports of illegal seizing of homes and improper accelerated foreclosures by these mortgage lenders.

But negotiations are not complete. According to officials with knowledge of the discussions between the banks and the federal government, the scope of the banks’ liability after the settlement, how the settlement money will be divided up, and future state and federal collaboration on bank regulation have yet to be determined.

Both the federal government and the banks seek a quick resolution as housing prices keep dropping, and negative equity remains prevalent.

Sheila Bair, the chairman of the Federal Deposit Insurance Corporation and bank regulator, warns that a settlement must be reached quickly, as the effects of the fraud could last for years.

Testifying in front of Congress last month, Bair said she fears the banks, and their clients, will suffer “significant” damages and that “flawed mortgage banking processes have potentially infected millions of foreclosures.” 

More News