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.
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.
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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.