Could We See A Foreclosure Settlement Soon?

The foreclosure settlement saga continues to drag on and on, and as five of the biggest lenders in the country – Bank of America, Wells Fargo, JPMorgan Chase, Ally Financial, and Citigroup – sit across from a collection of state attorneys-general for yet another week, millions of homeowners, homebuyers, and investors are left waiting for something to give.

That something – an impending foreclosure settlement that could finally resolve the issue – may be at hand.

According to some sources, the Department of Justice, state attorneys-general, and the banks are in preparations to wrap up talks and announce a settlement regarding robo-signing and other fraudulent mortgage loan practices. The settlement has been quoted as being worth as much as $20 billion split between the banks, and could or could not include a controversial release of liability from future lawsuits against the banks once the agreement has been reached.

The most apparent result from any pending settlement is the change to foreclosure laws and how banks are allowed to process foreclosures and mortgages in general. Of course, robo-signing still continues, so action will need to be taken to clear up that unsightly aspect of the industry, but a settlement could provide a shot in the arm to the market and to investors looking for some stability.

Of course, the year-long settlement negotiations have been near this point before, always ending in no action being taken and the deal falling through at the last minute due to one or both sides balking at some proposed measure. For banks, it has long been the idea of immunity from future legal entanglements stemming from the mortgage loan fraud; for the states, it has been the distasteful idea that big banks can get away from serious malfeasance without serious consequences.

Even with this proposed settlement, critics are not happy and do not think the settlement goes nearly far enough. These critics include state attorneys-general from California, New York, and Massachusetts (Kamala Harris, Eric Schneiderman, and Martha Coakley, respectively).

Still, there is no doubt that the nation’s backlog of foreclosures exists in part because banks, by and large, have stopped processing foreclosures or have seriously closed the amount of foreclosures they have processed as a result of potential legal trouble brewing due to foreclosure practices – akin to a diver not wanting to dive into a murky pool because he is unsure of its depth and hidden dangers.

What this settlement will probably accomplish is similar to floodgates opening – allowing tens of thousands of foreclosures to flood the market over the next six months as banks eagerly seek to unload these non-performing assets from their ledgers. Expect prices to fall substantially, opening up the market for foreclosure hunters looking for bargains.