Foreclosure Mess Finally Resolved - Analyst Blog
January 08 2013 - 8:50AM
Zacks
Homeowners whose properties were wrongly foreclosed as well as
the entire housing sector can now breathe a sigh of relief. The
Office of the Comptroller of the Currency (OCC) and other banking
regulators have announced a foreclosure settlement deal with 10
banks.
The banks – Citigroup, Inc. (C), MetLife Bank, a
unit of MetLife, Inc. (MET), Bank of
America Corporation (BAC), JPMorgan Chase &
Co. (JPM), Wells Fargo & Company
(WFC), PNC Financial Services Group Inc. (PNC),
SunTrust Banks, Inc. (STI), U.S.
Bancorp (USB), Aurora Loan Services and Sovereign Bank,
unit of Banco Santander, S.A. (SAN) – have agreed
to pay in aggregate $8.5 billion in settlement. Yet, four banks –
HSBC Holdings plc (HBC), Ally Financial,
EverBank Financial Corp. (EVER) and OneWest Bank –
are still in discussions with the regulators.
Out of the total, $3.3 billion will be utilized for direct payments
to eligible borrowers, while $5.2 billion will be used for
providing relief to troubled homeowners through principal
reductions and loan modifications. The deal will enable more than
3.8 billion homeowners, whose property was wrongly foreclosed in
2009–2010 by the abovementioned mortgage servicers to get cash
compensation, ranging from a few hundred dollars to maximum of
$125,000.
As a part of the deal, borrowers are expected to be contacted by
the end of March with details related to their payments. Further,
the regulators will form 11 categories of aggrieved borrowers and
the banks will categorize borrowers for payments.
Additionally, under the terms of the deal, the process initiated by
the OCC in 2011 – to review all the borrowers’ files that were
wrongly foreclosed in 2009-2010 – would end. Under that proposal,
the banks were required to hire independent consultants to go
through the loan files and look for any faulty foreclosure
practice.
However, this was turning out to be costly and time-consuming
affair for the banks – having already spent nearly $1.5 billion on
the consultants hired. Therefore, they opted for a one-time
settlement deal.
Yet, banks would have to take one-time charges related to the
settlement. Wells Fargo anticipates a pre-tax charge of about $644
million in the fourth quarter of 2012 related to the deal, whereas
Citigroup expects to record a pre-tax charge of $305 million.
Further, BofA anticipates its fourth-quarter results to be
adversely impacted by about $2.5 billion of pre-tax charge for the
settlement deal, litigation (primarily mortgage-related) and other
mortgage-related matters. For USB, the deal is anticipated to lower
its fourth-quarter earnings per share by 3 cents for the cash part
of the deal.
Though the settlement is expected to marginally dent the companies’
fourth-quarter results, in the long run it will be a relief for the
banks. Further, the distressed homeowners would also be benefited.
We are hopeful that like the earlier foreclosure settlement deal,
this one would also be a decisive step in restoring confidence in
businesses and rejuvenating the sagging housing market.
BANK OF AMER CP (BAC): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
EVERBANK FIN CP (EVER): Free Stock Analysis Report
HSBC HOLDINGS (HBC): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
METLIFE INC (MET): Free Stock Analysis Report
PNC FINL SVC CP (PNC): Free Stock Analysis Report
BANCO SANTAN SA (SAN): Free Stock Analysis Report
SUNTRUST BKS (STI): Free Stock Analysis Report
US BANCORP (USB): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
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