The Wall Street Journal reports that the Obama administration is trying to push a settlement that could force America’s largest banks to pay for reductions in loan principal worth billions of dollars following breakdowns in mortgage servicing.
According to the Journal, which in its report cites people familiar with the matter, should a unified settlement be reached, some state attorneys general and federal agencies will also push for banks to pay more than $20 billion of civil fines or fund a similar amount of loan modifications for troubled borrowers.
The Obama administration, notes the Journal, wants a commitment from loan servicers to reduce loan balances for borrowers who are underwater, and that such costs would not be borne by investors who bought mortgage-backed securities. The administration would thus force servicers that mishandled foreclosure procedures to bear losses by writing down loans they service on behalf of clients such as Fannie Mae (FNMA.OB), Freddie Mac (FMCC.OB) and other investors.
The Journal also said that the regulators are looking to settle with as many as 14 servicers, including three of the nation’s four largest banks: Bank of America (BAC), JPMorgan (JPM) and Wells Fargo & Co (WFC).
A settlement would not only allow banks to devise their own modifications and require them to reduce second-lien mortgages when primary mortgages are modified, but will also help lift a cloud of uncertainty that has stalled the foreclosure process since last fall, the Journal said.