Ten mortgage lenders, including Bank of America and Wells Fargo, have agreed to give homeowners around the country more than $8.5 billion in cash payments and mortgage relief in a settlement announced Monday.
Bank of America will pay $1.1 billion in cash and provide $1.8 billion in mortgage relief, the bank said. Wells Fargo said it will pay $766 million in cash and commit $1.2 billion in relief.
The settlement halts the independent foreclosure review that stemmed from a 2011 settlement with two federal agencies over claims of shoddy mortgage servicing and foreclosure practices, including lost paperwork and robo-signing, the mass signing of paperwork without reading it.
In that review, the servicers involved were required to pay independent consultants to review loan files and determine whether any errors were made. Borrowers would be eligible to receive payments based on what type of error occurred.
The banks and servicers will now pay $3.3 billion directly to borrowers in increments ranging from a few hundred dollars to $125,000 depending on the individuals situation, according to the Office of the Comptroller of the Currency and the Federal Reserve. The other $5.2 billion will flow to borrowers in the form of loan modifications and other mortgage relief.
Instead of reviewing loan files, Mondays settlement allows servicers to place borrowers into broad categories of errors that may have occurred in their foreclosure processes. The OCC and Federal Reserve will determine how much money borrowers in each category will receive, OCC spokesman Bryan Hubbard said.
Borrowers whose homes were in foreclosure during 2009 or 2010 are eligible. About 3.8 million borrowers are expected to fall in that category.
About 1.25 million Bank of America customers are affected.
We support the new approach because it speeds the delivery of payments to borrowers, will provide support for homeowners still struggling to make payments and encourages continued community stabilization efforts and recovery of the housing market, said Dan Frahm, a spokesman for the Charlotte-based bank.
Wells Fargo Home Mortgage president Mike Heid said: 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.
Hubbard said the OCC anticipates that the lenders will have contacted borrowers about payments by the end of March.
The settlement comes as the nations banks continue to navigate the fallout of the mortgage crisis. Bank of America also said Monday it has settled an unrelated matter with mortgage giant Freddie Mae and will pay more than $10 billion.
Less than a year ago, five of the largest U.S. mortgage servicers settled with a consortium of state attorneys general and federal agencies for a collective $25 billion.
Review program troubled
The review ran into issues soon after it was announced.
The Government Accountability Office said in July that the review was too complicated to be effective. In the first wave, 4.5 million letters were sent to borrowers. Only 5 percent were returned.
The OCC and Federal Reserve extended the deadline to apply for a review several times and took out advertisements in thousands of publications to promote the program.
Banks participating also complained that the cost associated with funding the review had ballooned, The New York Times reported last week.
When we began the Independent Foreclosure Review, the OCC pledged to fix what was broken, identify who was harmed, and compensate them for that injury. While todays announcement represents a significant change in direction, it meets those original objectives by ensuring that consumers are the ones who will benefit, and that they will benefit more quickly and in a more direct manner, Comptroller of the Currency Thomas J. Curry said in a statement.
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 nations housing markets.
Critics: Deal too small
Some critics said the deal did not go far enough. The National Consumer Law Center said the banks would probably have been forced to pay much more money had the review process continued and determined who was harmed.
The Independent Foreclosure Reviews were deeply flawed, and any movement towards more compensation for homeowners is a step in the right direction, the centers staff attorney, Alys Cohen, said in a statement. However, the capped pool of cash payments is wholly inadequate in light of the scale of the harm.
U.S. Rep. Elijah Cummings, the House Committee on Oversight and Government Reforms top Democrat, said he was disappointed that government watchdogs finalized the agreement before answering questions from Congress about how the settlement amount was determined, how funds will be distributed, and what will happen to other families abused by mortgage servicing companies who havent yet had their cases reviewed.
The committee had sent a letter Jan. 5 to regulators to request a briefing before any new settlement was reached or announced publicly.
I do not know what the rush was to make this settlement without answering these key questions, and although I look forward to obtaining information about how this deal may assist homeowners, I have serious concerns that this settlement may allow banks to skirt what they owe and sweep past abuses under the rug without determining the full harm borrowers have suffered, Cummings said. The McClatchy Washington Bureau contributed.