California to get largest slice of foreclosure set

By Alejandro Lazo

February 9, 2012, 9:22 a.m.

California appears to have walked away with the biggest chunk of the landmark foreclosure settlement struck by states and big banks.

Troubled underwater homeowners in California can expect $12 billion in principal write-downs, including  through short sales, over the next three years, according to the state attorney general's office.

And taking into account a complex series of credits designed to encourage the big banks to make payments to homeowners, California’s share of the settlement could climb to as much as $18 billion. That aid would go to hundreds of thousands of borrowers, many in the areas of the state that were hit hardest by the housing bust.

"This outcome is the result of an insistence that California receive a fair deal commensurate with the harm done here,” state Atty. Gen. Kamala D. Harris said in a statement. “We insisted on homeowner relief for Californians and demanded enforceability so homeowners actually see a benefit that will allow them to stay in their homes, and preserved our ability to investigate banker crime and predatory lending."

After walking away for a time from the drawn-out settlement talks, state negotiators secured what appears to be the most sizable chunk of relief of any state in the pact. That includes several guarantees specific to the Golden State, many of which were negotiated in around-the-clock, down-to-the-wire sessions over the last two weeks.

The deal only covers homeowners whose mortgages either are owned by the banks in the deal — Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. — or are serviced by them on behalf of private investors. The settlement does not include the sizable number of California homeowners whose loans are owned by government-controlled mortgage giants Fannie Mae and Freddie Mac.

The most prominent guarantee secured by the attorney general’s office is that the banks are required to write down the mortgage debt of Californians by $12 billion, including through offers of short sales in which homeowners are allowed to sell a home for less than the amount they owe on the property. About 250,000 Californians are covered under that part of the deal.

If the banks don’t fulfill the $12-billion guarantee they will have to make cash payments of up to $800 million directly to the state, a provision that is enforceable in California court, instead of federal court in Washington, where the rest of the deal is covered.

A series of incentives structured into the deal will direct aid to areas in the state that have been hardest hit by the foreclosure crisis, a so-called “Stockton provision” that the attorney general sought after a visit this year to that foreclosure-ravaged city, negotiators said. The terms of the deal call for those hardest-hit areas to receive relief within the first year of the settlement, according to the way the deal was structured.

The attorney general’s office provided this breakdown of the counties expected to receive the most aid under the settlement:

-- Los Angeles: $3.92 billion

-- Riverside: $1.59 billion

-- San Bernardino: $1.13 billion

-- Sacramento: $820 million

-- Stanislaus County: $368 million

The agreement also includes these estimated dollar amounts:

-- $849 million toward refinancing the loans of some 28,000 borrowers who are "underwater" but current on their payments.

-- $279 million of restitution for roughly 140,000 homeowners who were foreclosed upon between 2008 and 2011.

-- $1.1 billion for payment assistance or forbearance for unemployed homeowners, plus money for moving expenses for those who do lose their homes, as well as money toward repairing blight.

-- $3.5 billion toward wiping out unpaid loans that remain after foreclosure for some 32,000 homeowners, particularly home equity lines of credit or additional cash-out refinances.

-- $430 million to go to the state attorney general’s office in costs, fees and penalty payments

Harris said she would use some the money to bolster her investigations into the mortgage meltdown by expanding a more than 42-member Mortgage Fraud Strike Force announced last year.