For the banks, the settlement comes mainly as a relief. If each state had sued the lenders and won, the total settlements could have run into the hundreds of billions. And all the lenders have set aside adequate reserves.
"It's really a wash," said Paul Miller, bank analyst at FBR Capital Markets. "A billion dollars is nothing for these large trillion-dollar banks."
The bulk of the settlement will go toward reducing underwater mortgages and refinancing some of them. But the banks had realized they weren't going to collect the loans and had already written down their value, Miller noted.
The deal requires banks to make foreclosure their last resort. And they can't foreclose on a homeowner who is being considered for a loan modification.
Still, the federal government has a dubious track record of enforcing such rules. The Obama administration's signature foreclosure-prevention program has failed to help more than half of those who have applied to have their mortgage payments lowered permanently. Many have complained that the program is a bureaucratic nightmare.
Critics also note that the settlement will apply only to privately held mortgages and not to those owned by mortgage giants Fannie Mae and Freddie Mac. Banks own about half of all U.S. mortgages, or roughly 30 million loans. Fannie and Freddie own the other half.
The deal is "another sad example of Wall Street not being held accountable for fraud, perjury and crimes that created the greatest economic crisis since the Great Depression," said Dennis Kelleher, CEO of Better Markets, a group that advocates stricter financial regulation. "The math does not add up in a massive 'robo-signing' scandal that is nothing more than systemic criminal conduct."
The settlement also ends a separate investigation into Bank of America and Countrywide for inflating appraisals of loans from 2003 through most of 2009. Bank of America acquired Countrywide in 2008.
Associated Press Writers Michael Virtanen in Albany, N.Y., Pallavi Gogoi in New York and Ben Feller, Christopher S. Rugaber and Marcy Gordon in Washington contributed to this report.
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