Missed Super Bowl, Frantic Talks Led to $25 Billion Bank Deal

Hashing out the $25 billion settlement reached by Bank of America Corp., JPMorgan Chase & Co. (JPM) and three other U.S. banks with 49 states required missing some football.

Bank executives, state officials and U.S. Housing Secretary Shaun Donovan worked frantically over Super Bowl weekend as the New York Giants beat the New England Patriots 21-17, according to three people involved in the discussions. The negotiations ran down to the wire the night before the agreement was announced, they said.

Negotiators made phone calls late into the night and ironed out the final details by phone at about 2 a.m. or 3 a.m. yesterday, less than six hours before the Obama administration released the details to the public, said the people, who didn’t want to be identified because the negotiations were private.

The result was what the U.S. called the largest federal-state civil settlement in the nation’s history, ending a probe of abusive foreclosure practices stemming from the collapse of the housing bubble. The banks have committed $20 billion in various forms of mortgage relief plus payments of $5 billion to state and federal governments.

The nation’s five largest mortgage servicers -- Bank of America, JPMorgan, Wells Fargo & Co. (WFC), Citigroup Inc. (C) and Ally Financial Inc. (ALLY) -- negotiated the settlement with federal agencies, including the Justice Department, and state attorneys general.

Faulty Documents

The deal comes more than a year after attorneys general from all 50 states announced a probe into foreclosure practices following disclosures that banks were using faulty documents to seize homes. Oklahoma reached a separate agreement worth $18.6 million with the banks and didn’t sign the federal settlement, according to its attorney general, Scott Pruitt.

The multistate deal will “begin to turn the page on an era of recklessness” that led to the housing bubble, President Barack Obama said yesterday in Washington, where he was joined by administration officials and state attorneys general. Obama’s announcement was preceded by lengthy, sometimes contentious negotiations.

Florida Attorney General Pam Bondi pulled her support for the agreement late on Feb. 3, three days before the deadline for states to sign on to the deal, according to one person involved in negotiations. She refused to sign on until the banks would guarantee that California didn’t get a better deal than other states, two people said.

Florida, California

A third person said Bondi wanted to make sure that her state got as good of a deal as California.

Negotiations were delayed more than once by Bank of America, which sent Eric Telljohann, a credit loss mitigation strategies executive, to the bargaining table, said two people involved in the talks. Telljohann, who reports to Ron Sturzenegger in Bank of America’s legacy mortgage division, wasn’t authorized to commit to any major decisions without seeking approval from Chief Executive Officer Brian Moynihan and sometimes the board of directors, according to these people.

The Charlotte, North Carolina-based bank was accountable for almost half of the $25 billion settlement so it was natural that the board had to sign off on certain commitments ahead of time, said Dan Frahm, a bank spokesman.

BofA’s Stake

“When material changes to terms were proposed, our negotiators reviewed changes with our management team to confirm support,” Frahm said, adding that the banks’ negotiating team had “significant authority” to make some decisions on their own. “This was appropriate and responsible given the size of the settlement and the fact that Bank of America was committing the greatest share of dollars and programs for customers in need of assistance.”

Bank of America had the most at stake for its customers and shareholders, Frahm said.

“Our approach to the negotiations was rigorous and disciplined with a sense of urgency to provide additional assistance to our customers and get the mortgage crisis behind us,” he said.

Jenn Meale, a spokeswoman for Bondi, didn’t respond to an e-mail or a phone call seeking comment on her role in the talks. Late in the day on Feb. 8, Bondi still hadn’t signed on to the deal and was “actively involved” in settlement discussion, Meale said in an e-mail at the time.

Brian Sullivan, a spokesman for the Department of Housing and Urban Development, didn’t return a call or e-mail seeking comment yesterday on Donovan’s role in the talks.

750,000 Borrowers

The $25 billion agreement includes $1.5 billion in payments to some 750,000 borrowers who lost their homes to foreclosure. About $17 billion will pay for mortgage debt forgiveness, forbearance, short sales and other assistance to homeowners. Servicers will also provide $3 billion in refinancing to lower homeowners’ interest rates. A website has been set up to give information on the settlement.

Bank of America has committed as much as $11.8 billion, including a cash payment of $3.24 billion, according to a government fact sheet. The balance will be applied toward mortgage modifications and other benefits for borrowers. San Francisco-based Wells Fargo has committed as much as $5.35 billion; New York-based JPMorgan $5.29 billion; New York-based Citigroup $2.2 billion; and Detroit-based Ally $310 million.

Best-Case Scenario

The total could grow to $40 billion if the next nine largest mortgage servicers sign on to the agreement, said an administration official who briefed reporters on condition of anonymity before the announcement. In a best-case scenario, if all banks participate fully, the deal could be worth $45 billion to homeowners and people who lost their homes to foreclosure, the official said.

This settlement will hold accountable institutions that wronged families and neighborhoods and “contributed to the collapse of not just the American economy but the international economy,” Donovan said in Washington.

California Attorney General Kamala Harris, who initially didn’t sign on the accord when states were required to decide, said in a statement that the settlement provides a commitment to the state of as much as $18 billion.

California’s agreement with the banks includes $12 billion for principal reduction, with incentives for banks to move swiftly and penalties if they don’t, Harris said yesterday.

The settlement doesn’t release banks from any criminal liability or grant any immunity, release any private claims by individuals or any class-action claims, or release claims related to the packaging of mortgage loans into securities, according to the website outlining the agreement.

The resolution also establishes a monitor, Joseph A. Smith Jr., North Carolina’s banking regulator, to track compliance with the terms of the agreement.

To contact the reporters on this story: Dawn Kopecki in New York at dkopecki@bloomberg.net; David McLaughlin in New York at dmclaughlin9@bloomberg.net; Lorraine Woellert in Washington at lwoellert@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; John Pickering at jpickering@bloomberg.net; Maura Reynolds at mreynolds34@bloomberg.net

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