Foreclosure Settlement’s Value Hinges on California’s Participation

As the national settlement talks to resolve mortgage companies’ wrongful foreclosures inch towards a conclusion, the size of the deal hinges on California.

Starting Wednesday and continuing throughout the remainder of the week, negotiators representing 50 states attorneys generals and the Obama administration are distributing to all parties documents outlining two possible deals: one based on California’s participation and a second, smaller one, based on California’s absence, said sources familiar with the discussions. The documents provide a hard number for each state’s share of the settlement and also an estimate of the potential benefits to homeowners under both scenarios. California, which has the nation’s highest foreclosure rate, is one of a handful of states that have threatened to leave the deal over concerns that the settlement is too soft on banks.

That California’s participation could sweeten the terms of the deal reflects the important role that this state plays in any settlement. As part of the settlement, participating states will agree not to pursue various claims against the lenders in the future. California, which is not only a large state but has been ground zero for many of the wrongful foreclosures, represents significant future liability for banks. Thus, the lenders are more inclined to offer a greater sum to ensure that California will not pursue claims against them down the road.

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