Bank of America, JPMorgan Chase, Wells Fargo, Citibank & Ally Financial: Agree to $25B Mortgage Deal after Deceptive Practices
The nation’s five largest mortgage lenders have agreed to overhaul their industry after deceptive foreclosure practices drove homeowners out of their homes, government officials said Monday.
A draft settlement between the banks and U.S. states has been sent to state officials for review. The Five Major Banks involved include: Bank of America, JP Morgan Chase, Wells Fargo, Citibank and Ally Financial, along with U.S. State Attorneys General could adopt the agreement within weeks, according to two officials briefed on the discussions. They spoke on condition of anonymity because they are not authorized to discuss the agreement publicly.
The settlement would be the biggest in a single industry since the 1998 multistate tobacco deal. And it would end a painful chapter that grew out of a 2008 financial crisis.
Those who lost there homes to foreclosure are unlikely to get their homes back or benefit much financially from the settlement, which could be as high as $25 billion. About 750,000 Americans; about half of the households who might be eligible for assistance under the deal, will likely receive checks for about $1800.
However, the agreement could reshape long-standing mortgage lending guidelines and make it easier for those at risk of foreclosure to restructure their loans. Roughly, one million homeowners could see the size of their mortgage reduced.
The settlement would only apply to privately held mortgages issued between 2008 and 2011, not those held by government-controlled Fannie Mae and Freddie Mac. Fannie and Freddie own about half of all U.S. mortgages, roughly about 31 million U.S. home loans. Nearly 8 million Americans have faced foreclosure since the housing bubble burst.
About 1 million homeowners could also get the principal amount of their mortgages written down by an average of $20,000. One in four homeowners with a mortgage – or roughly 11 million people – owe more than their home is worth. These so-called “underwater” borrowers have little chance of refinancing.
Under the deal:
• $17 billion would go toward reducing the principal that struggling homeowners owe on their mortgages.
• $5 billion would be placed in a reserve account for various state and federal programs; a portion of that money would cover the $1,800 checks sent to those homeowners affected by the deceptive practices.
• $3 billion would go to help homeowners refinance at 5.25 percent.
Comment: “And at the end of the day millions of homeowners and their families are displaced, never to be made whole again and not one person involved [in what could be termed “The Biggest Rape of the People in American History”] will go to jail. Only in America!”
By 1990, the effects of recession left Trump unable to meet loan payments. Trump financed the construction of his third casino, the $1 billion Taj Mahal, primarily with high-interest junk bonds. That put him at a disadvantage with competitors who used more of their own money to finance their projects, industry experts have said.
Things were so bleak for Trump at this time that in the August 21, 1990 edition of the Jersey Record, columnist Mike Kelly wrote “If we still had debtors’ prisons, Trump would be in the dungeon.” Kelly added that “Donald Trump is a Third World Nation.” Although he shored up his businesses with additional loans and postponed interest payments, by 1991 increasing debt brought Trump to business bankruptcy and the brink of personal bankruptcy.
Banks and bond holders had lost hundreds of millions of dollars, but opted to restructure his debt to avoid the risk of losing more money in court. The Taj Mahal re-emerged from bankruptcy on Oct 5, 1991, with Trump ceding 50% ownership in the casino to the original bondholders in exchange for lowered interest rates on the debt and more time to pay it off.
On Nov 2, 1992, the Trump Plaza Hotel was forced to file a prepackaged Chapter 11 Bankruptcy protection plan after being unable to make its debt payments. Under the plan, Trump agreed to give up a 49 percent stake in the luxury hotel to Citibank and five other lenders. In return Trump would receive more favorable terms on the remaining $550+ million owed to the lenders and retain his position as chief executive, though he would not be paid and would not have a role in day-to-day operations.
By 1994, Trump had eliminated a large portion of his $900 million personal debt and reduced significantly his nearly $3.5 billion in business debt. While he was forced to relinquish the Trump Shuttle (which he had bought in 1989), he managed to retain Trump Tower in New York City and control of his three casinos in Atlantic City.
Chase Manhattan Bank, which lent Trump the money to buy the West Side yards, his biggest Manhattan parcel, forced the sale of a parcel to Asian developers. According to former members of the Trump Organization, Trump did not retain any ownership of the site’s real estate – the owners merely promised to give him about 30 percent of the profits once the site was completely developed or sold.
Until that time, the owners wanted to keep Trump on to do what he did best: build things. They gave him a modest construction fee and a management fee to oversee the development. The new owners also allowed him to put his name on the buildings that eventually rose on the yards because his well-known moniker allowed them to charge a premium for their condos.
In 1995, he combined his casino holdings into the publicly held Trump Hotels & Casino Resorts. Wall Street drove its stock above $35 in 1996, but by 1998 it had fallen into single digits as the company remained profitless and struggled to pay just the interest on its nearly $2 billion in debt. Under such financial pressure, the properties were unable to make the improvements necessary for keeping up with their flashier competitors.
Problems loomed for Trump’s casino resorts. In a May 28, 2004, Wall Street Journal article, Trump said the specter of bankruptcy bothered him “from a psychological standpoint,” but added, “it really wouldn’t matter that much.” A number of his bondholders disagreed. In the same article, Meyer Marvald, a Florida retiree who said he owned about $44,000 of the bonds, claimed “[Trump] has the Sword of Damocles hanging over our heads.”
On October 21, 2004, Trump Hotels & Casino Resorts announced a restructuring of its debt. The plan called for Trump’s individual ownership to be reduced from 56 percent to 27 percent, with bondholders receiving stock in exchange for surrendering part of the debt. Since then, Trump Hotels has been forced to seek voluntary bankruptcy protection to stay afloat. After the company applied for Chapter 11 Protection in November, 2004, Trump relinquished his CEO position but retained a role as Chairman of the Board. In May, 2005 the company re-emerged from bankruptcy as Trump Entertainment Resorts Holdings.
Donald Trump saids he has what it takes to turn the economy and this country around. “What do you think? Can the teflon man really take an economy that is on the brink of bankruptcy and turn it into pure gold or better yet, Trump World?
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