Leading Mortgage Firms May Be Forced To Reduce Loan Balances For Distressed Homeowners

The nation’s five largest mortgage firms may be forced to reduce loan balances for distressed homeowners as part of an agreement with state attorneys general and the Obama administration to settle claims of faulty mortgage practices, a top state official involved in the negotiations said Tuesday. The proposal is part of a set of remedies banks would have to agree to in order to settle the state and federal probes launched last autumn, which found that the largest mortgage firms illegally seized the homes of at least dozens of borrowers and engaged in shoddy practices that short-changed troubled borrowers.

Mortgage principal reductions would comprise part of a larger fine levied on Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial. Penalties could reach $30 billion, officials said. The forced reduction of mortgage principal as a penalty against flawed past practices has proven contentious. Some Republican attorneys general have objected, as have some Republican members of Congress.

On Tuesday, however, a state official told The Huffington Post on condition of anonymity that the option “very much remains on the table.” While officials have not determined how much would be exacted from the banks — and specific dollar amounts to settle the probes have not yet been discussed between the state and federal governments and the banks — the proposal to compel financial firms to cut loan balances is part of one of two documents circulated Tuesday at a hotel in northern Virginia, where bankers, state officials and policy makers from the Obama administration began a three-day meeting. The targeted banks have argued vociferously, both in private discussions and in public, that they opposed cutting distressed homeowners’ principal balances.

(Credit : http://www.huffingtonpost.com)

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