Financial Negotiations During the Banking Crisis: Did the Mortgage Foreclosure Settlement Meet Its Goals?

The crisis negotiations between the Obama Administration and major US financial institutions resulted in a bevy of settlements when the dust finally cleared

By on / Business Negotiations

In early February 2012, following months of difficult negotiations, the attorneys general of 49 states (all but Oklahoma) and the Obama administration reached a settlement agreement with five of the nation’s largest banks aimed at improving the stability of the U.S. housing market and punishing the banks for foreclosure abuses, the New York Times reports.

The deal was rooted in an investigation into mortgage servicing following revelations that banks were evicting borrowers based on false or incomplete documentation. The settlements gives financial relief to nearly 2 million current and former American homeowners hurt by the 2008 housing crisis through reductions in mortgage debt, home refinancing, and cash payments. Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial must pay about $5 billion in fines and spend at least $20 billion in borrowers assistance.

As more and more states signed on, the talks grew increasingly intense. New York attorney general Eric T. Schneiderman held up the negotiations until the banks agreed to give prosecutors and regulators the right to investigate certain aspects of the housing bubble, including allegations of criminal wrong doing. Some analysts cheered the agreement as a positive sign that the country was beginning to move on from the housing crisis. But others criticized it for helping only a fraction of affected homeowners.


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Moreover, the Financial Times reports that a clause in the agrement gives banks credit for meeting settlement obligations by modifying loans under and existing federal loan-modification program known as HAMP. HAMP partially reimburses lenders for losses incurred on loan write-downs and pays them additional funds for avoiding foreclosures. State officials reportedly had misgivings about allowing the banks to capitalize on taxpayer-financed loan restructurings as part of the settlement, the Financial Times reports, but federal officials pushed the clause through.

Government officials insist that the banks will be on the hook for the full $20 billion in homeowner aid and the banks must not face much stronger incentives to help the hardest-hit borrowers. one of the settlement’s key goals. But another goal – punishing the banks for wrongdoing – may have gotten lost in the process.

The negotiations reflect the difficulty  of balancing multiple goals in complex multiparty talks – a challenge that stronger communication and negotiation within each party could help to resolve.

Related Business Negotiations Article:  Integrative Negotiations, Value Creation, and Creativity at the Bargaining Table


Discover step-by-step techniques for avoiding common business negotiation pitfalls when you download a copy of the FREE special report, Business Negotiation Strategies: How to Negotiate Better Business Deals, from the Program on Negotiation at Harvard Law School.


Adapted from “When Goals Get Lost in the Process: The Mortgage Foreclosure Settlement,” first printed in the Negotiation newsletter, May 2012.

Originally published in 2012.

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One Response to “Financial Negotiations During the Banking Crisis: Did the Mortgage Foreclosure Settlement Meet Its Goals?”

  • Larry L.

    I had the pleasure of participating in the Mediation Workshop offered through the PON in 2009. I am presently serving as a mediator for the the State of Nevada’s Foreclosure Mediation Program. Nevada has been regarded as ground zero for both general real estate collapse as well as foreclosures. While not true mediation s, since participation is compulsory for the lender, the process has been instructional on a number of levels. In general, levels of communication are quite restricted, with a multitude of agendas which quite frankly lender’s counsel (at the table)are seldom apprised of. The lender’s “waterfall” analysis of portfolio-ed properties, considered proprietary, is very skewered, investor tranch-by-investor tranch. Further, many of these investors have signed “pooling agreements” with file servicing representatives who may indeed benefit financially in ways,separate and substantial, from the investor’s position. COMPLEX INDEED!

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