LOS ANGELES (AP) — State Attorney General Kamala Harris announced Thursday that the nationwide settlement with banks over foreclosure abuses could be worth up to $18 billion to Californians who were among those hardest hit by the crisis.
Five major banks, including Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial, will reduce loans for nearly 1 million households across the country. Checks for $2,000 will be sent to about 750,000 Americans who were improperly foreclosed upon.
The settlement will help hundreds of thousands of homeowners in California, according to Harris, who held a news conference to announce the details. Harris called the settlement a tremendous victory for the state where 2 million borrowers have homes that are worth less than their mortgages.
"We were very, very determined to make sure that California — the hardest hit in the country — would receive its fair share," she said.
Harris estimates homeowners in Los Angeles County will receive $3.93 billion, Riverside County $1.59 billion, San Bernardino County $1.13 billion, Sacramento County $820 million; and Stanislaus County $368 million.
The money will go toward alleviating a wide range of issues, including modifying loans for those who are behind in their payments, repairing the blight in some neighborhoods left by waves of foreclosures, and paying off some unpaid debts to banks.
The largest chunk — more than $12 billion — will go toward reducing the amount owed on loans or offering short sales to an estimated 250,000 homeowners who are behind on their payments or "underwater," meaning they owe more on their loan than their home is worth. Another $849 million will be used to help refinance loans for about 28,000 California homeowners with interest rates above 5.25 percent who are current on their mortgage payments but underwater on their loans.
Harris said she obtained separate enforceable guarantees to make sure the banks would honor their commitments by certain deadlines. Penalties for violating the agreement could include paying the state hundreds of millions of dollars. Harris also announced the appointment of a California monitor to help ensure the terms of the settlement are enforced.
Though she gave no specifics, Harris also said she planned to push for similar reductions for the 60 percent of homeowners whose loans are owned by Fannie Mae and Freddie Mac.
Harris talked about the hard-working families she's met across the state who are embarrassed by having lost their homes, and even recalled how proud her own family was when they bought a home.
"There is a lot of work yet to be done," Harris said.
The settlement stems from abuses that occurred after the housing bubble burst. Many companies that process foreclosures failed to verify documents and some employees signed papers they hadn't read or used fake signatures or robo-signing to speed the process.
In September, when the estimated relief to California was $4 billion, Harris rejected the settlement, saying it was inadequate and would limit her ability to bring civil charges against mortgage lenders that wrongfully foreclosed on homeowners. California's support for the settlement was critical because it was among the hardest hit states.
Even though Harris held out for more, some believe the settlement still falls short.
Richard Green, director of University of Southern California's Lusk Center for Real Estate, believes officials have exaggerated just what kind of impact it will have.
"I really don't see this as being that big a deal," said Green. "In reality, the total number of dollars is still small compared to the value of the mortgages that are underwater. To some extent, the numbers reflect losses the lenders would have taken anyway."
Outside the Ronald Regan State Building in downtown Los Angeles, where the news conference was held, a crowd of Occupy LA protesters chanted and toted signs that read, "Make banks pay!" When the protest grew increasingly aggressive, police and California Highway Patrol officers arrested two people and for a time would not let anyone leave the building until picketers calmed down.
"This is not a good deal for California," said Cheryl Aichele, who led the chanting. "This is only a good deal for the banks and the government."