HUD secretary: Mortgage settlement deal 'very close'

WASHINGTON – The federal government is “very close” to a settlement with mortgage servicers that could help a million homeowners by reducing what they owe on their mortgages, Housing Secretary Shaun Donovan told a conference of the nation’s mayors Wednesday.

Donovan said the so-called robo-signing scandal, in which mortgage servicers were accused of initiating foreclosures based on incorrect and sometimes fraudulent documents, “exposed a whole slew of problems in servicing these mortgages that need to be fixed.”

In addition to principal reductions, the settlement would supply cash payments to a smaller number of families who were directly harmed by the servicers’ conduct, Donovan said.

He suggested an statement could come within weeks. Any deal would also need to be authorized by state attorneys general and the major mortgage servicers.

“We think we are getting really close to reaching a potential settlement,” said Geoff Greenwood, spokesman for Iowa Attorney General Tom Miller. He’s leading the conversation on behalf of the attorneys general.

Settlement talks between state and federal authorities and the servicers began in March, but a finalized deal has proved elusive for months.

If one is reached, the $19 billion to $25 billion deal is expected to cover the five biggest servicers: Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial.

The settlement may also enable more borrowers to refinance into lower-interest-rate loans, even if they owe more on their homes than they’re worth, and to set more stringent mortgage servicing standards for the entire market.

Nationwide, almost one of five homes with a mortgage are “underwater,” or 11 million borrowers, market researcher CoreLogic says.

The attorneys general hope to demonstrate that demonstrate that principal reductions reduce the danger that homeowners will default on loans. To date, loan owners have mostly shunned reducing principal, saying that hasn’t been proven to work.

Not all states are involved in the negotiations but could join a final deal. Massachusetts Attorney General Martha Coakley, speaking to business leaders Wednesday, said she’d “keep an open mind” but was concerned that even a $25 billion deal may not mean that Massachusetts borrowers get their share. The state in December sued servicers for alleged unlawful foreclosures.

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