California will receive $18 billion from a huge settlement between federal officials and the nation's largest mortgage lenders, Attorney General Kamala Harris announced Thursday.
Many of the foreclosures happened after the 2008 financial collapse. Some of those foreclosures were fradulent as a result of "robo-signing," or fake signatures used by bank employees to speed up the process.
Now, more than 2 million borrowers have homes worth less than their mortgages, according to Harris' office.
The deal may benefit about 466,000 homeowners in California, the Attorney General's office estimated Thursday.
Critics say the settlement aids irresponsible homebuyers. Yet Harris rejected that belief in her statement, saying the crackdown on fraud targets homeowners hurt during the bubble.
“California families will finally see substantial relief after experiencing so much pain from the mortgage crisis,” Harris said in a statement.
Some locals familiar with the crisis agreed.
"This is a turning point in the housing crisis," said Opperman. "This is going to help those strugging with mortgages but also boost the housing market in terms of home prices."
A major benefit to Thursday's deal is a reduction in unpaid principal balances. Many struggling homeowners have been unable to take advantage of low interest to reduce their mortgage payments because they don't have enough equity.
Harris' office listed some other available relief for homeowners. The options include:
- Payments to borrowers who were wrongly foreclosed upon
- Refinancing for borrowers whose homes are worth less than the money they owe
- The opportunity for short sales and other relocation assistance
However, others were critical of the amount of people the deal would actually help. To qualify to refinance under this settlement, loans must be both serviced and owned by one of the five settling banks: Bank of America Corp., Citigroup Inc., JP Morgan Chase & Co., Wells Fargo & Company and Ally Financial Inc.
"It sounds good on paper, but it's gonna have minimal impact," said Bruce Marks, founder and CEO of Neighborhood Assistance Corporation of America. "That's because the fundemental part of it is the principal reduction and that's only on mortgages that are owned by the major lenders out there."
It's too soon to tell how this deal might affect the entire housing market, instead of just those who qualify for relief, said San Diego Mortgage Broker Sam Gardner.
"I do like the idea of 'independent monitoring' of the new settlement so we don't have the proverbial fox watching the chicken coop," he said. "But I'll need to see the results before I get excited, as talk in our business is cheap."
In total, 49 states received $25 billion in the settlement. Oklahoma was the only state to not benefit from Thursday's deal.