U.S. files $25 billion mortgage settlement
The Department of Justice on Monday formally filed the landmark $25 billion agreement to settle claims of widespread mortgage and foreclosure abuse by five of the nation’s largest banks.
Under the settlement, Bank of America (Countrywide), Chase (WaMu), Wells Fargo (Wachovia), Citigroup, and Ally Financial (GMAC) are required to:
- Pay $5 billion to federal and state governments. About $1.5 billion of this amount will go toward cash payments to homeowners who lost their homes to improper foreclosures between Jan. 1, 2008 and Dec. 31, 2011. “If you were foreclosed upon in the last few years and you can point to anything wrong that the servicers did – lost your paperwork, missed a deadline – then you can get this payment of $1,500 to $2,000,” said Iowa Attorney General Tom Miller.
- Dedicate more than $20 billion in mortgage relief to homeowners who are delinquent, at risk of default, or owe more than their homes are now worth. About $10 billion will go toward reducing loan principals for homeowners who are delinquent, likely to default, or owe more on their mortgages than their homes are worth. $3 billion will go toward refinancing underwater mortgages to lower interest rates and monthly payments for homeowners who are paying on time. The remaining $7 billion will go toward compensating military service members who were charged high interest rates (above 6%) or forced to sell their homes at a loss as a result of their deployments and payment relief for unemployed homeowners. “The way that this will work is we will be crediting the banks against their requirements…to actually reduce principal, actually deliver benefits. But we won’t be crediting them dollar for dollar,” said HUD Secretary Shaun Donovan. “And so in the end what we are likely to get in terms of actual principal reduction is in the neighborhood of $35 billion out of the $20 billion in consumer relief.” The banks will have to complete their obligations within three years.
- Comply with tougher loan servicing and foreclosure standards to protect homebuyers and homeowners. The settlement bars banks from engaging in unfair and deceptive practices including:
- robo-signing of foreclosure documents
- charging excessive fees for default-related services or foreclosures
- failing to apply homeowner payments in a timely manner
- failing to respond to homeowners’ questions
- foreclosing on military service members without the required court orders
- providing phase or misleading information to borrowers during the loan modification or foreclosure process
- losing documents and paperworks submitted by homeowners seeking loan modifications
- improperly denying eligible homeowners loan modifications – foreclosing on homeowners who were still in the loan modification process
- foreclosing on homeowners before all other options, including loan modification, were exhausted
The settlement also requires banks to adequately train and staff representatives to properly handle questions from homeowners about their mortgage, loan modification, foreclosure, and other issues. “It forces the banks to up its acts and fix the problems uncovered ruing our investigations going forward,” said Donovan. “It requires lenders and servicers in this settlement…to follow a long list of rights for those facing foreclosure. No more lost paperwork. No more excuses. No more runaround.”
Former North Carolina banking commissioner Joseph A. Smith will oversee the agreement’s implementation, making sure the banks hold up their end of the agreement. Failure to comply with the settlement terms, such as the consumer protection measures, could result in $1 million fines for each violation or $5 million fines for repeat violations. For more information, please visit www.NationalMortgageSettlement.com.
The settlement only covers civil claims brought by the Department of Justice and 49 states and the District of Columbia. Federal and state authorities may continue to pursue criminal charges, including mortgage securitization misconduct, against these mortgage servicers.
Bank of America (Countrywide):
- $2.38 billion cash payment to federal and state governments.
- $8.57 billion consumer relief.
Wells Fargo (Wachovia):
- $1 billion cash payment to federal and state governments.
- $4.34 billion consumer relief.
Chase (Washington Mutual):
- $1.12 billion cash payment to federal and state governments.
- $4.21 billion consumer relief.
- $413 million cash payment to federal and state governments.
- $1.79 billion consumer relief.
Ally Financial (GMAC):
- $1.1 billion cash payment to federal and state governments.
- $200 million consumer relief.
Bank of America (Countrywide): 877-488-7814
JPMorgan Chase (WaMu): 866-372-6901
Wells Fargo (Wachovia): 800-288-3212
- United States v. Bank of America et al. complaint (PDF)
- Consent judgment: Bank of America (PDF)
- Consent judgment: Wells Fargo (PDF)
- Consent judgment: Citigroup (PDF)
- Consent judgment: Ally Financial (PDF)
- Consent judgment: J.P. Morgan Chase (PDF)
- WhatTheFolly.com: Landmark $25 billion settlement reached with nation’s 5 largest mortgage servicers
- WhatTheFolly.com: Transcript: HUD Secretary Shaun Donovan’s remarks on the $25 billion mortgage settlement
- WhatTheFolly.com: Transcript: Press conference Q&A on the $25 billion multi-state mortgage settlement