10 banks agree to pay $8.5 billion for foreclosure abuse
WASHINGTON (AP) — Ten major banks agreed Monday to pay $8.5 billion to settle federal complaints that they wrongfully foreclosed on homeowners who should have been allowed to stay in their homes.
The banks, which include JPMorgan Chase, Bank of America and Wells Fargo, will pay billions to homeowners to end a review process of foreclosure files that was required under a 2011 enforcement action. The review was ordered because banks mishandled people's paperwork and skipped required steps in the foreclosure process.
The settlement was announced jointly by the Office of the Comptroller of the Currency and the Federal Reserve.
Separately, Bank of America agreed Monday to pay $10.3 billion to government-backed mortgage financier Fannie Mae to settle claims related to mortgages that soured during the housing crash.
The agreements are the banks' latest step toward eliminating hundreds of billions of dollars in potential liabilities related to the housing crisis that crested in 2008. When they release fourth-quarter earnings later this month, the banks hope to reassure investors that they are making progress toward addressing those so-called legacy claims.
But advocates say the foreclosure deal allows banks to escape responsibility for damages that might have cost them much more. Regulators are settling at too low a price and possibly at the expense of the consumer, they say.
"This was supposed to be about compensating homeowners for the harm they suffered," said Diane Thompson, a lawyer with the National Consumer Law Center. The payout guidelines already allowed wronged homeowners less compensation than the actual damages to them, she said.
Under the settlement, people who were wrongfully foreclosed on could receive from $1,000 up to $125,000. Failing to offer someone a loan modification would be considered a lighter offense; unfairly seizing and selling a person's home would entitle that person to the biggest payment, according to guidelines released last summer by the OCC.
The agreement covers up to 3.8 million people who were in foreclosure in 2009 and 2010. All will receive some amount of compensation. That's an average of $2,237 per homeowner, although the payouts are expected to vary widely.
About $3.3 billion would be direct payments to borrowers, regulators said. Another $5.2 billion would pay for other assistance including loan modifications.
The companies involved in the settlement also include: Citigroup, MetLife Bank, PNC Financial Services, Sovereign, SunTrust, U.S. Bank and Aurora. The 2011 action also included GMAC Mortgage, HSBC Finance Corp. and EMC Mortgage Corp.
The deal "represents a significant change in direction" from the original, 2011 agreements, Comptroller of the Currency Thomas Curry said in a statement.
Banks and consumer advocates had complained that the loan-by-loan reviews required under the 2011 order were time consuming and costly without reaching many homeowners. Banks were paying large sums to consultants who were reviewing the files. Some questioned the independence of those consultants, who often ruled against homeowners.
Curry said the new deal meets the 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."
"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," Curry said.
Thompson agreed that the earlier review process was deeply flawed and said the move toward direct payments is a positive development. But she said the deal will only work if it includes strong oversight and transparency provisions.
"It's another get out of jail free card for the banks," said Thompson. "It caps their liability at a total number that's less than they thought they were going to pay going in."
Citigroup said in a statement that the bank is "pleased to have the matter resolved" and believes the agreement "will provide benefits for homeowners." Citi expects to record a charge of $305 million in the fourth quarter of 2012 to cover its cash payment under the settlement. The bank expects that existing reserves will cover its $500 million share of the non-cash foreclosure aid.
Bank of America CEO Brian Moynihan said the agreements were "a significant step" in resolving the bank's remaining legacy mortgage issues while streamlining the company and reducing future expenses.
Leaders of a House oversight panel asked regulators for a briefing on the proposed settlement on Friday. Regulators refused to brief Congress before announcing the deal publicly.
Maryland Congressman Elijah Cummings, the top Democrat on the House Committee on Oversight and Government Reform, said in a statement that he was "deeply disappointed" in the regulators' actions.
"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. He said regulators have failed to answer key questions about how the settlement was reached, who will get the money and what will happen to others who were harmed by these banks but were not included in the settlement.
The settlement is separate from a $25 billion settlement between 49 state attorneys general, federal regulators and five banks: Ally, formerly known as GMAC; Bank of America; Citigroup; JPMorgan Chase and Wells Fargo.
The banks, which include JPMorgan Chase, Bank of America and Wells Fargo, will pay billions to homeowners to end a review process of foreclosure files that was required under a 2011 enforcement action. The review was ordered because banks mishandled people's paperwork and skipped required steps in the foreclosure process.
The settlement was announced jointly by the Office of the Comptroller of the Currency and the Federal Reserve.
Separately, Bank of America agreed Monday to pay $10.3 billion to government-backed mortgage financier Fannie Mae to settle claims related to mortgages that soured during the housing crash.
The agreements are the banks' latest step toward eliminating hundreds of billions of dollars in potential liabilities related to the housing crisis that crested in 2008. When they release fourth-quarter earnings later this month, the banks hope to reassure investors that they are making progress toward addressing those so-called legacy claims.
But advocates say the foreclosure deal allows banks to escape responsibility for damages that might have cost them much more. Regulators are settling at too low a price and possibly at the expense of the consumer, they say.
"This was supposed to be about compensating homeowners for the harm they suffered," said Diane Thompson, a lawyer with the National Consumer Law Center. The payout guidelines already allowed wronged homeowners less compensation than the actual damages to them, she said.
Under the settlement, people who were wrongfully foreclosed on could receive from $1,000 up to $125,000. Failing to offer someone a loan modification would be considered a lighter offense; unfairly seizing and selling a person's home would entitle that person to the biggest payment, according to guidelines released last summer by the OCC.
The agreement covers up to 3.8 million people who were in foreclosure in 2009 and 2010. All will receive some amount of compensation. That's an average of $2,237 per homeowner, although the payouts are expected to vary widely.
About $3.3 billion would be direct payments to borrowers, regulators said. Another $5.2 billion would pay for other assistance including loan modifications.
The companies involved in the settlement also include: Citigroup, MetLife Bank, PNC Financial Services, Sovereign, SunTrust, U.S. Bank and Aurora. The 2011 action also included GMAC Mortgage, HSBC Finance Corp. and EMC Mortgage Corp.
The deal "represents a significant change in direction" from the original, 2011 agreements, Comptroller of the Currency Thomas Curry said in a statement.
Banks and consumer advocates had complained that the loan-by-loan reviews required under the 2011 order were time consuming and costly without reaching many homeowners. Banks were paying large sums to consultants who were reviewing the files. Some questioned the independence of those consultants, who often ruled against homeowners.
Curry said the new deal meets the 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."
"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," Curry said.
Thompson agreed that the earlier review process was deeply flawed and said the move toward direct payments is a positive development. But she said the deal will only work if it includes strong oversight and transparency provisions.
"It's another get out of jail free card for the banks," said Thompson. "It caps their liability at a total number that's less than they thought they were going to pay going in."
Citigroup said in a statement that the bank is "pleased to have the matter resolved" and believes the agreement "will provide benefits for homeowners." Citi expects to record a charge of $305 million in the fourth quarter of 2012 to cover its cash payment under the settlement. The bank expects that existing reserves will cover its $500 million share of the non-cash foreclosure aid.
Bank of America CEO Brian Moynihan said the agreements were "a significant step" in resolving the bank's remaining legacy mortgage issues while streamlining the company and reducing future expenses.
Leaders of a House oversight panel asked regulators for a briefing on the proposed settlement on Friday. Regulators refused to brief Congress before announcing the deal publicly.
Maryland Congressman Elijah Cummings, the top Democrat on the House Committee on Oversight and Government Reform, said in a statement that he was "deeply disappointed" in the regulators' actions.
"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. He said regulators have failed to answer key questions about how the settlement was reached, who will get the money and what will happen to others who were harmed by these banks but were not included in the settlement.
The settlement is separate from a $25 billion settlement between 49 state attorneys general, federal regulators and five banks: Ally, formerly known as GMAC; Bank of America; Citigroup; JPMorgan Chase and Wells Fargo.
I read if all the money were divided equally, it amounts to ~$860.00 per homeowner affected. Seems about right, those campaign contributions are really paying off.
Well since I am paying my mortgage on time I guess that means I get a little piece of the pie right... HAH... I not going to hold my breath waiting for that check to show up!
I can see the scams coming out of the wood work now by people trying to snake some of that money away from the pot. Don't forget the politicians trying out how to sang some for their coffers as well.
What's funny is KOMO puts this story as a low item hidden down the page and puts "snowflakes in the forecast" as a headline.. jeesh people.
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I guess the fat cat's will be putting their hands out for more govt funds to cover these losses...Â
I never understood why the banks wanted this forclosure mess. To this simple person it makes sense to work with homeowners to keep them in their homes if possible. Owners will keep the property in better shape but isn't some money coming from the owners better than auctioning off the house and losing money. But then again the banks didn't lose money the government bailed them out.
@taxpro To answer your question as to why the banks want this foreclosure mess, it is because they do not own the liability. They sold all of the risk of loss on these non-performing loans to investors who pay the banks a fee for servicing the loans. Essentially, collecting payments and tracking the balance due. Banks are able to collect greater fees from the investors if a loan becomes non-performing, so it incentivizes the banks to put someone into foreclosure over working with them on a viable modification.
This is pathetic! How about a dollar for dollar fix. Thee banks have foreclosed on millions of homeowners since 2005, raking in millions of dollars in profits every year. This is still going on! Just call and talk to the washington state attorney generals office, or the state funded park view services. How about the calling the clear hotline and talk to the state paid attorneys there. While these politicians are filling there pockets with these settlements honest hard working american people, and veterans are losing their homes. The end result is homeowners with destroyed credit, broken bank accounts, that are now homeless, and have to rent. We need to stop allowing our banks/big business/and politicians do what they want unchecked. Our forefathers deserve more for their sacrifices. Our country is like a stick. It can be bent only so far before it snaps. Once that happens you cant unbreak it.
I feel for the people who legitimately should have been negotiated with; those who didn't, for years, stop making payments and who had the verifiable income necessary to resume payments on their homes if the loan amounts were adjusted to reflect real value. The banks have acted in a way that exemplifies big business capitalizing on defenseless people. They have made out like bandits and callously left people to pick up the scattered remains of their lives. People shouldn't buy houses they can't comfortably afford, and responsibility for determining what to borrow falls squarely on the individual; but the foreclosure process is where the banks are doing America wrong. And they got bailed out to boot!