A group of 10 mortgage servicers on Monday agreed to pay a total of US$8.5 billion to end a US government-mandated case-by-case review of housing crisis foreclosures, in an acknowledgment that the program had proven too cumbersome and expensive.
About 3.8 million borrowers whose homes were in foreclosure within the time frame of the review will receive cash compensation ranging from hundreds of US dollars to US$125,000, depending on the type of errors they experienced, the US Office of the Comptroller of the Currency (OCC) said.
The reviews followed the “robo-signing” scandal that emerged in 2010 involving allegations banks pursued faulty foreclosures by using defective or fraudulent documents.
Bank of America Corp, Citigroup Inc, JPMorgan Case & Co, Wells Fargo & Co, MetLife Bank and five others will pay US$3.3 billion directly to eligible borrowers, and US$5.2 billion in loan modifications and forgiveness, regulators said.
The OCC and the US Federal Reserve Board said they accepted the agreement to get relief to consumers quicker.
In April 2011, the government required the servicers to review foreclosure actions between 2009 and 2010 to determine whether borrowers had been unlawfully foreclosed on or suffered some other financial harm due to errors in the foreclosure process.
“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,” US Comptroller of the Currency Thomas Curry said in a statement.
The agreement announced on Monday resolves matters left unsettled by a US$25 billion deal that the top five servicers reached in February last year with the US Department of Justice, housing authorities and state attorneys general to end an investigation into foreclosure practices, including robo-signing.
Those authorities had taken a broad approach to dealing with allegations of robo-signed documents and faulty foreclosures, while the bank regulators had initially opted for the more targeted, individual reviews.
Bank of America said it supports the new approach “because it expands the number of borrowers who will receive payment, speeds the delivery of those payments and will provide support for homeowners still struggling to make payments.”
MetLife said it was fully cooperating with the OCC review process and said its portion of the settlement was US$37 million.
The other servicers said they were pleased to reach the settlement.
Regulators said the agreement replaces the case-by-case reviews with a broader framework, which allows borrowers to receive compensation regardless of whether they suffered harm.
Instead, the payouts will be based on whether a borrower falls into one of 11 categories, ranging from whether the person was eligible for protections under the US’ Servicemembers Civil Relief Act, whether the borrower was not in default, or whether they were denied a loan modification.
The other banks involved in the settlement are: Aurora Bank FSB, PNC Bank NA, Sovereign Bank, SunTrust Banks Inc and US Bank.
US regulators are continuing negotiations with four other servicers and are expected to enter into similar settlements with them.
At least one US lawmaker was disappointed with the settlement.
Representative Elijah Cummings, the top Democrat in the US House of Representatives’ Committee on Oversight, said he had serious concerns that the deal “may allow banks to skirt what they owe and sweep past abuses under the rug without determining the full harm borrowers have suffered.”
On Friday, Cummings and Oversight Committee Chairman Darrell Issa sent a letter to the agencies requesting a briefing on the settlement.