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New Foreclosure Deal in the Offing

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Late last week, the New York Times reported that after the $25 billion foreclosure-settlement deal in 2012, another deal is expected to be announced very soon. The deal is anticipated to address the issues not dealt in the 2012 settlement.

The $10 billion settlement deal is anticipated to be announced this week by the Office of the Comptroller of the Currency (OCC) along with other banking regulators. Fourteen banks, including JPMorgan Chase & Co. (JPM - Free Report) , Bank of America Corporation (BAC - Free Report) , Citigroup, Inc. (C - Free Report) and Wells Fargo & Company (WFC - Free Report) , are going to be part of the deal.

The deal is expected to end the efforts of the U.S. government to hold the mortgage servicers responsible for faulty foreclosure practices. Moreover, the process initiated by the OCC in 2011 – to review all the borrowers’ files that were wrongly foreclosed in 2009-2010 – would also come to an 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 is turning out to be a costly affair for the banks – having already spent nearly $1.3 billion on the consultants hired. Therefore, they have opted for a one-time settlement deal.

Under the deal, a significant amount – nearly $3.75 billion – will be utilized to compensate homeowners whose properties were wrongfully foreclosed. The remaining amount will be used for providing relief to troubled homeowners through principal reductions and loan modifications.

At present, regulators and the banks are negotiating to determine the individual payouts to the aggrieved homeowners. Further, the regulators would give credit to the banks for compensation that they have already paid to the borrowers.

The deal, if finalized, will be a relief for the banks as well as homeowners. We are hopeful that like the earlier one, this deal would also be a decisive step in restoring confidence in businesses and rejuvenating the sagging housing market.

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