The federal government and attorneys general of forty-nine states reached an agreement on Thursday with five of the nation’s largest mortgage servicers, Bank of America, JP Morgan Chase & Co., Wells Fargo & Company, Citigroup Inc., and Ally Financial Inc..
The agreement resolves alleged violations of federal and state law including the “robo-signing” of affidavits in foreclosure proceedings, deceptive lending practices, failure to present alternatives to homeowners before foreclosing, and filing improper documentation in federal bankruptcy court.
The servicers have agreed to allocate approximately $10 billion toward principal reduction for underwater homeowners–those who owe more than their home is worth–who are delinquent or at risk of default. An additional $3 billion will go toward refinancing the loans of underwater homeowners who are not at risk of default. Seven billion dollars will go toward various relief programs for borrowers. The servicers will pay $5 billion dollars to the federal and state governments–$1.5 billion for the Borrower Payment Fund which will provide cash payments to certain foreclosure victims and $3.5 billion to compensate the federal and state governments for funds expended as a result of servicer misconduct. One billion dollars of the cash payment will come specifically from Bank of America, settling allegations of fraudulent practices by Countrywide and Bank of America in originating and underwriting FHA-insured mortgage loans.
In addition to the programs and payments discussed above, the servicers have also agreed to make several changes to how they service mortgage loans, implementing strict oversight of foreclosure processing, ensuring that foreclosure is used only as a last resort, and establishing a singular point of contact for borrowers seeking information about their loans.
Under the settlement, the state and federal governments remain free to pursue criminal enforcement actions, including for the conduct underlying the civil settlement. Additionally, the civil settlement does not cover the wrongful securitization of high-risk mortgages. The federal government may still recover its losses or impose penalties on banks that issued FHA-insured loans that failed to satisfy underwriting standards. Any claims that borrowers may have against the lenders have been preserved.
Read the entire press release, “Federal Government and State Attorneys General Reach $25 Billion Agreement with Five Largest Mortgage Servicers to Address Mortgage Loan Servicing and Foreclosure Abuses”