Mortgage Servicer Settlement Finally Reached

Arnfinal settlement between the nation’s five largest mortgage servicers, two federalrnagencies and 49 of the states’ attorneys general (AGs) was announced thisrnmorning by officials representing the AGs, the Departments of Justice (DOJ) andrnHousing and Urban Development (HUD).   The settlement, the result of  a 16 month nationwide investigation intornforeclosure abuses, fraud, and unacceptable mortgage servicing practices is, asrnanticipated, for $25 billion dollars but there was no information released asrnto which state was not participating in the action.  </p

Bank of America, JPMorgan Chasern& Co., Wells Fargo & Company, Citibank, and Ally Financial, (formerlyrnGMAC) and their servicing subsidiaries have agreed to commit a minimum of $17rnbillion directly to borrowers through a series of relief effort optionsrnincluding principal reduction.  Servicersrnwill likely provide up to an estimated $32 billion in direct homeowner relief.  There will be $4.2 billion paid directly tornthe states and $750 million to the federal government.  In addition, a comprehensive set of new standardsrnwill be implemented to protect homeowners from future abuses and an independentrnmonitor will be appointed to ensure servicer compliance.</p

Nothing in the agreement grants anyrnimmunity from criminal offenses and will not affect criminalrnprosecutions.  The agreement does not prevent homeowners or investors fromrnpursuing individual, institutional or class action civil cases against the fivernservicers.  The pact also enables state attorneys general and federalrnagencies to investigate and pursue other aspects of the mortgage crisis,rnincluding securities cases.</p

U.S. Attorney General Eric Holderrntold an audience attending the announcement about the scope of the investigationrnwhich led to the settlement calling it a remarkable example of cooperative lawrnenforcement.  It involved multiplernfederal agencies working in partnership with state AG offices and state bankingrnregulators.   The U.S. Trustees Program alone reviewed morernthan 37,000 bankruptcy documents and similar large-scale reviews were alsornconducted by HUD, FHA, and others.  Holder said the investigations revealedrndisturbing practices. “For instance, we saw that – far too often -rnservicers pushed borrowers into foreclosure, even though federal regulationsrnrequired the servicers to try other alternatives first.  These failuresrndidn’t just hurt borrowers who might have been able to afford modifiedrnmortgages.  They fueled the downward spiral of our economy – and ofrncommunities nationwide.”  </p

Holder stressed that, while thernagreement resolves some civil claims, it does not prevent state and federalrnauthorities from pursuing criminal enforcement actions nor does it prevent any   claims by any individual borrowers who wishrnto bring their own lawsuits. </p

 “I also want to note that,rnwith this settlement, we aren’t just holding mortgage servicers accountable forrnwrongs they committed.  We are using this opportunity to fix a brokenrnsystem, and to lay the groundwork for a better future.  Our nation’srnleading mortgage servicers will be required to follow a new set of standards,rnwhich will be overseen by an independent monitor.” and will be enforceable inrnfederal court.” </p

Iowa Attorney General Tom Miller,rnwho led the settlement talks on behalf of the states said, “One of the hardestrnbattles I fought over the last 16 months was over principal reduction.  At first the banks tried to tell us that wasrna non-starter.  We kept fighting back, and now I’m very proud to say thatrnwe got it across the finish line.”  He said that targeted principalrnreduction will be one of the keystones of the agreement, and will help keeprnmany families in their homes and out of foreclosure.  “People will seernthat this works, it’ll result in lower re-default rates, and I think it’ll be arncatalyst for more.”</p

Miller released a statement throughrnhis office that said the final agreement will be filed in U.S. District Courtrnin Washington, probably later this month, and will have the authority of arncourt order.  </p

“Because of the complexity of thernmortgage market and this agreement, which will span a three year period,rnborrowers in some cases may be contacted directly by one of the five includedrnmortgage servicers regarding loan modification offers, may be contacted by arnsettlement administrator or their state attorney general, or may need torncontact their mortgage servicer to obtain more information about specificrnprograms and whether their loan qualifies.  More information will be madernavailable as the settlement programs are implemented.”</p

Simultaneous with the settlementrnagreement, the Office of the Comptroller of the Currency (OCC) announced it hadrnagreed in principal on a settlement of civil money penalties against four ofrnthe five banks in connection with unsafe and unsound mortgage servicing and foreclosurernpractices against which OCC had issued cease and desist orders last April.  </p

Under this settlement the four banksrn(Ally is not included in this action) agree not to contest the OCC’s ability tornimpose penalties totaling $394 million and the OCC agrees to hold in abeyancernimposition of such penalties if the servicers make payments or take other actionsrnunder the larger federal-state settlement with a value of at least the penalty amountsrnthat each servicer agrees OCC could impose. rnAdditional penalties will be assessed if the agreement is not fulfilledrnwithin three years.  Bank of America isrnliable for $164 million, Citibank, $34 million, Chase $113 million, and WellsrnFargo $83 million.  </p<p<br /rnrnrnrnrnrnrnrnrnrnrn

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