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Big US banks to pay damages to settle home loan fiasco

Posted January. 02, 2013 03:07,   


Large U.S. banks will likely soon agree with financial regulators to pay 10 billion U.S. dollars to conclude probes into non-performing mortgage loans, which have last for more than a year and a half, the Wall Street Journal said Monday.

A final agreement will likely be reached because the financial regulators are also positively considering the measure.

According to the Wall Street Journal and The New York Times, the U.S. Office of the Controller of Currency and the Federal Reserve Board judged that banks extensively and recklessly foreclosed homes without properly reviewing the documents of borrowers who failed to pay interest in 2009 and 2010. The banks were ordered to conduct probes on their own in April last year, and authorities also made them compensate customers who suffered damage.

Wells Fargo and other large banks have spent 1.3 billion dollars for consultants required in the probes alone, and believe that related costs will eventually amount to 3 billion dollars. The direction of their strategy has shifted to paying a settlement and starting negotiations with regulators.

The banks sent documents for probe application to 4.3 million people to investigate cases where customers suffered, but just 356,000 documents had been submitted to the banks through last month. This meager result also came only after several extensions of the deadline. Earlier, Congress and consumer groups claimed that such probes do not benefit consumers and will only exonerate banks.

The controller`s office also recently responded to the claim by banks that such probes are inefficient, and started negotiations with banks. In February last year, large U.S. banks devised a compromise on cutting 25 billion dollars from the principal and interest for borrowers of mortgage loans with the Obama administration and prosecutors of 49 states. But the office never participated in the deal and is pushing ahead with an independent probe.

The probes` efficiency was poor, however, and even if they are to be completed, it will be difficult to determine the level of compensation the banks will pay to individual customers, among other barriers. As the probe period is feared to be extended further, banks have started the process to hold negotiations, media reports said.

If a draft agreement is finalized, efforts to hold accountable banks that sloppily handled mortgage loans following the onset of the 2008 global financial crisis will likely end. Probes into small and medium-size financial institutions are underway, but analysts say tenacious and thorough investigation by U.S. financial authorities could give significant clues to Korea.