The U.S. federal government and attorneys general from forty-nine states Thursday reached a landmark $25 billion settlement with the nation's five largest mortgage servicers to address mortgage loan servicing and foreclosure abuses, the U.S. Department of Justice said.
The mortgage servicers who reached the settlement are: Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC), Citigroup Inc. (C), and Ally Financial Inc. (ALLY).
The unprecedented settlement provides major financial relief to homeowners, creates new homeowner protections, and paves the way for a major shift in how servicers do business.
According to federal officials, Bank of America will bear most of the settlement at $11.8 billion, Wells Fargo $5.4 billion, J.P. Morgan $5.3 billion, Citigroup $2.2 billion, and Ally Financial $310 million.
The settlement is the result of extensive investigations by federal agencies, including the Department of Justice, Housing and Urban Development, and state attorneys general.
Commenting on the agreement, Housing and Urban Development Secretary Shaun Donovan said, "This historic settlement will provide immediate relief to homeowners - forcing banks to reduce the principal balance on many loans, refinance loans for underwater borrowers, and pay billions of dollars to states and consumers."
As per the terms, servicers are to jointly pay $20 billion towards financial relief to borrowers.
About $10 billion will go toward reducing the principal on loans for delinquent borrowers who owe more on their mortgages than their homes are worth. Up to $7 billion will go towards other forms of relief, including forbearance of principal for unemployed borrowers. At least $3 billion will go toward refinancing loans.
Apart from the $20 billion payment, servicers will shell out $5 billion in cash to the federal and state governments, of which $1.5 billion will be used to pay borrowers whose homes were sold or taken in foreclosure between January 1, 2008 and December 31, 2011. The remaining $3.5 billion will be used to repay public funds lost as a result of servicer misconduct and for legal aid programs.
The $5 billion includes a $1 billion resolution of a separate investigation into fraudulent conduct by Bank of America related to the origination and underwriting of Federal Housing Administration-insured mortgage loans, and inflation of appraisal values.
The settlement requires new servicing standards to prevent foreclosure abuses. It will also provide enhanced protections for service members that go beyond those required by the Service members Civil Relief Act (SCRA).
Also, the four servicers that had not previously resolved certain portions of potential SCRA liability have agreed to conduct a full review, overseen by the Justice Department's Civil Rights Division, to assess if any service members were foreclosed in violation of SCRA since January 1, 2006.
The servicers also agreed to conduct a review to find whether any service member, from January 1, 2008, to the present, was charged interest in excess of 6 percent on their mortgage, after a valid request to lower the interest rate. Servicers will be required to make payments for wrongful foreclosure or for having charged a higher interest rate. This compensation is in addition to the $25 billion amount.
The settlement agreement will be filed as a consent judgment in the U.S. District Court for the District of Columbia.
Compliance with the agreement will be observed by an independent monitor who, upon observing violations, will impose penalties of up to $1 million per violation (or up to $5 million for certain repeat violations).
President Barack Obama hailed the landmark settlement but added that it alone will not solve the problems afflicting the housing market.
BAC is trading at $8.22, up $0.09 or 1.11%, on a volume of 397 million shares.
JPM is trading at $37.93, down $0.37 or 0.97%, on a volume of 20 million shares.
WFC is trading at $30.54, down $0.09 or 0.30%, on a volume of 21 million shares.
C is trading at $33.78, down $0.45 or 1.33%, on a volume of 46 million shares.
by RTT Staff Writer
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