The nation’s 10 largest banks and mortgage servicing companies reached a settlement with federal regulators to provide an additional $8.5 billion in mortgage assistance and payments to struggling borrowers.
The settlement is essentially an add-on to the $25 billion settlement they entered in 2011 over faulty foreclosure filings in states across the country and inadequate communications with borrowers. This was widely referred to as the “robo signing” scandal because thousands of documents attesting to foreclosures were allegedly signed and submitted in court without being verified. In some cases, the transfer of loan ownership became muddled.
The original settlement included an independent foreclosure review (IFR) process in which borrowers could petition a panel to review the conduct of the bank servicing their loan.
Weston attorney Roy Oppenheim, who specializes in foreclosure defense, said the IFR panels weren’t truly independent because the banks hired and paid the reviewers, who often didn’t have much experience. But in some cases, the panels found damaging conduct by the banks, Oppenheim said.
“They are settling this because the banks recognized it was too expensive and unwieldy to come forward with their mistakes and pay for them,” Oppenheim said.
The banks and mortgage servicers in the new settlement with the Federal Reserve Board and the Office of the Comptroller of the Currency (OCC) are Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo.
The agreement impacts 3.8 million borrowers whose homes were in foreclosure in 2009 and 2010. The benefits could be up to $125,000 per borrower, depending on the type of servicer error.
Of the settlement, $3.3 billion will be in direct cash payments to borrowers and the other $5.2 billion will be in mortgage assistance, such as loan modifications, short sales and forgiveness of deficiency judgments.
There will be no more IFR process. Borrowers will receive compensation whether or not they initiate the process. A payment agent will contact borrowers about receiving payments.
“The OCC and the Federal Reserve accepted this agreement because it provides the greatest benefit to consumers subject to unsafe and unsound mortgage servicing and foreclosure practices during the relevant period in a more timely manner than would have occurred under the review process,” the regulators stated in a joint press release.
Oppenheim said the government has done a lousy job investigating the foreclosure practices of banks, but at this point it’s better to put cash in the hands of homeowners more quickly and move on.
“If homeowners can get any solace, it will be in the form of these settlement checks,” he added.