Distressed homeowners in the Sacramento region will get an estimated $1.2 billion over the next three years under a 49-state settlement with the nation's largest banks over foreclosure abuses.
California, one of the states hurt most by the mortgage meltdown, could see up to $18 billion under terms of the settlement announced Thursday by state Attorney General Kamala Harris.
Some homeowners could see their loans reduced by tens of thousands of dollars.
"California families will finally see substantial relief after experiencing so much pain from the mortgage crisis," Harris said in a news release Thursday. "Hundreds of thousands of homeowners will directly benefit."
The settlement covers loans serviced by the nation's five largest banks: Bank of America, Citigroup, Wells Fargo, JPMorgan Chase and Ally Financial, which was formerly GMAC.
It offers a minimum of $12 billion over three years to 250,000 distressed homeowners statewide to reduce the principal on their homes or facilitate short sales, where homes are sold for less than what is owed.
The settlement also includes $1.1 billion for homeowners who have lost their jobs or need transition assistance. Another $850 million will go to 28,000 homeowners who are current on mortgages but owe much more than their homes are worth.
The deal comes after Harris in September rejected a previous settlement, saying it gave inadequate relief to homeowners while allowing bank officials too much immunity. That plan would have provided about $4 billion in benefits for California.
The settlement does not provide principal reductions for the majority of California homeowners whose mortgages are held by federally controlled mortgage giants Fannie Mae and Freddie Mac.
The Federal Housing Finance Agency, which oversees Fannie and Freddie, have opposed such reductions, saying they would cost taxpayers more than $100 billion.
In the past, Harris has called for the FHFA's acting director, Edward DeMarco, to step aside. Her office also has sued Fannie Mae and Freddie Mac to compel them to answer questions about their alleged roles in California's housing meltdown. Fannie Mae and Freddie Mac hold about 60 percent of California's mortgages.
Consumer advocates commended Harris for getting a better deal than originally offered, but said more has to be done to resolve California's foreclosure crisis.
Kevin Stein, associate director of San Francisco-based California Reinvestment Coalition, said he's concerned that the deal does not require Fannie Mae and Freddie Mac to reduce homeowners' principal.
He also said the settlement does not address the problem of dual tracking, which occurs when a troubled homeowner applies for a loan modification and the bank starts both the modification process and the foreclosure process simultaneously.
(Harris said her office is backing legislation that would prohibit dual tracking.)
Under the settlement reached Thursday, California will continue to investigate alleged criminal misconduct by banking officials. The state said it will expand its Mortgage Fraud Strike Force and will continue to share resources with Nevada law enforcement officials, who are conducting their own investigation.
Harris said the deal sets up guarantees and enforcement procedures to compel the banks to live up to their agreement. Banks will have to pay the state $800 million if they fail to make the required $12 billion in principal reductions and short sales. The state will also appoint a monitor to oversee the bank's compliance.
Bank of America Corp., the largest lender in the Sacramento region, said it has committed as much as $11.8 billion toward the nationwide settlement. In a news release, the Charlotte, N.C.-based banking giant said the deal "would extend additional relief to homeowners who are struggling to make mortgage payments and to make refinancing options available to more homeowners."
The 49-state settlement has been valued at around $25 billion, but homeowners could see more than $40 billion in benefits over the next three years.
That's because the states are discounting amounts that banks provide in principal reductions on older, distressed loans. Under the formula, if a bank forgives $300,000 in principal on a 10-year loan, it will only get credit on about 10 percent of that principal reduction.
The idea is to provide incentives for banks to help homeowners who have only recently gotten into trouble and are more likely to remain in their homes.
Economists said the settlement could provide a substantial financial boost to the Sacramento region, where more than 70,000 homeowners have lost their properties since the beginning of the financial meltdown.
According to rough estimates provided by the attorney general's office, Sacramento County will likely receive $902 million in benefits over the next three years. Placer County's share of the settlement will be about $172.6 million, while El Dorado County will receive about $82.9 million. Yolo County will get $74.6 million.
Suzanne O'Keefe, economics professor at California State University, Sacramento, said the settlement is large enough to provide significant relief for homeowners facing foreclosure.
"We're clearly at the bottom of the housing crisis and I think this may help reduce the number of future foreclosures," she said.
For south Sacramento resident Denise Reynolds, the settlement may have come several months too late. After spending months in an unsuccessful pursuit of a loan modification, Reynolds said her bank plans to auction off her three-bedroom home today.
But Reynolds, who fell behind on her mortgage payments after her husband suffered a stroke in January 2010, said she was encouraged by Harris' willingness to stick up for homeowners and hopes that the settlement will help others like her in the future.
"I'm happy that there is someone out there who is trying to fight and negate the twisted practices," Reynolds said.