Ten major mortgage servicers reached an agreement with federal regulators to pay more than $8.5 billion over alleged foreclosure abuses, the Federal Reserve announced in a release Monday.
Of the $8.5 billion, $3.3 billion will go toward direct payments to eligible borrowers, and $5.2 billion will be used to assist borrowers in other ways, such as through loan modifications.
The servicers involved in the agreement include Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo.
In April 2011, the Office of the Comptroller of the Currency, the Fed, and the Office of Thrift Supervision (OTS) first announced enforcement actions after investigations led to allegations of abusive foreclosure practices.
As part of the consent orders, the servicers were required to hire third-party consultants to conduct a free Independent Foreclosure Review for borrowers who believed they incurred financial harm due to faulty foreclosure practices. The reviews were for foreclosure actions that occurred in 2009 and 2010.
The agreement with the 10 servicers replaces the Independent Foreclosure Review process with a new framework allowing eligible borrowers to receive compensation more quickly.
Under the settlement, eligible borrowers will receive compensation even if they did not request a foreclosure review. Eligible borrowers should receive anywhere from hundreds of dollars to $125,000, depending on the individual's situation.
According to the release, the OCC and the Fed “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.”
“We have learned a great deal from the reviews that have been conducted to date. However, it has become clear that carrying the process through to its conclusion would divert money away from the impacted homeowners and also needlessly delay the dispensation of compensation to affected borrowers. Our new course of action will get more money to more people more quickly, and it will speed recovery in the nation's housing markets,” said Comptroller of the Currency Thomas J. Curry in a statement.
The enforcement actions in 2011 included 14 servicers. Since all 14 servicers were not part of this agreement, the Fed announced it is working toward a similar agreement with the other servicers who were subject to the enforcement actions.
In response to the settlement, several banks issued statements, including Citi, which said, “We are pleased to have the matter resolved and believe this agreement is a positive development that will provide benefits for homeowners.”
In U.S. Bancorp's response, the bank said it “has long been committed to sound modification and foreclosure practices. We have always regarded foreclosure as a last resort, and have helped thousands of borrowers over the past several years to stay in their homes through a variety of modification programs.”
Mike Heid, president of Wells Fargo Home Mortgage, stated, “This agreement allows us to move forward and continue our focus on doing all we can do to provide relief to our customers and restore stability to housing markets across the country.”