We reported last month that the federal government and 49 state Attorneys General had reached a settlement with five big banks. Now the Attorneys General have asked a federal judge to approve the $25 billion settlement with mortgage lenders over foreclosure abuses that helped contribute to the worst housing crisis since the 1930s. The request was filed in the U.S. District Court for the District of Columbia. The Department of Justice called the settlement “the largest federal-state civil settlement ever obtained.”
The settlement with Bank of America, J.P. Morgan Chase, Wells Fargo, Citigroup and Ally Financial was said to resolve violations of federal and state law stemming from such practices as “robo-signing.” Interestingly, the banks have not admitted to the charges against them. I still am not sure about how good this settlement really is for the individuals who were the victims of the big banks. When you consider how little money each victim will receive – which is said to be between $1500 and $2000 – it doesn’t seem like a great settlement for them. Perhaps the other features of the settlement are such that it is good for the thousands of victims.
The settlement requires a judge’s approval. At press time, that hadn’t happened. Iowa’s Attorney General Tom Miller had this to say:
The complaint we filed sets the stage for what we anticipate will be a series of powerful federal court orders. We expect that many consumers across the country will soon start to see the significant direct relief and the new mortgage servicing standards that we negotiated as part of this settlement.
The agreement would require the lenders to provide relief to foreclosed borrowers to the tune of $20 billion. The relief proposed in the settlement includes the following:
• Reducing principal on loans for borrowers who are delinquent or at imminent risk of default and underwater on their loans. Refinancing loans for borrowers who are current on their mortgages but underwater;
• Forbearance of principal for unemployed borrowers (meaning that borrowers can tack some of the principal on the end of the loan as a zero-interest balloon payment);
• Anti-blight provisions;
• Short sales;
• Transitional assistance; and
• Benefits for service members.
The lenders will also be required to pay federal and state governments an additional $5 billion in cash, of which $1.5 billion will be used to establish a borrower payment fund to provide cash payments to borrowers whose homes were sold or taken in foreclosure between Jan. 1, 2008, and Dec. 31, 2011, and who meet other criteria.
The DOJ says the settlement also requires lenders to prevent mortgage abuses in the future, including prohibiting “robo-signing,” improper documentation and lost paperwork. The lenders’ standards would also make foreclosure a last resort after other options were explored; would stop banks from foreclosing on a home while the owners were being considered for a loan modification; would set protocol and a timeline for reviewing loan modification applications; would give owners the right to appeal if they are denied; and would create a single point of contact and adequate staff to handle questions.
According to information supplied by the DOJ, the settlement includes the payments set out below from the banks involved in the settlement to the federal and state governments:
• Ally will pay $110 million;
• Bank of America will pay $3.24 billion;
• Citigroup will pay $415 million;
• JPMorgan will pay $1.08 billion;
• Wells Fargo will pay $1.01 billion.
In addition to these amounts, the banks will give certain mortgage relief to their victims. The parties to the settlement claim this cost could be about $220 billion. But I am not sure this aspect of the settlement will cost the banks anywhere near that much. I am afraid the big banks will have dodged a bullet if this settlement is approved.
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