U.S. Banks to Pay $8.5 Billion to Settle Foreclosure Flaws
Ten of the largest U.S. mortgage servicers will pay a combined $8.5 billion under an agreement that will end case-by-case reviews of foreclosure-abuse claims stemming from a 2011 deal with regulators.
Companies including JPMorgan Chase, Bank of America and Citigroup must provide $5.2 billion in mortgage assistance and $3.3 billion in direct payments to wronged borrowers, the Office of the Comptroller of the Currency and the Federal Reserve said in a statement yesterday. The banks were among 14 servicers ordered to hire independent consultants to help clean up foreclosure practices amid claims they improperly seized homes in the wake of the subprime mortgage crisis.
“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,” Comptroller of the Currency Thomas Curry said in a statement. “While today’s 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.”
JPMorgan, the biggest U.S. bank by assets, will pay $700 million for the cash portion of the deal in addition to other settlement costs, according to a person briefed on the matter who declined to be identified because a bank-by-bank breakdown hasn’t been announced.
Executives of New York-based JPMorgan “are pleased to have it now behind us,” said Amy Bonitatibus, a spokeswoman for the bank. “We have helped nearly 1 million homeowners avoid foreclosure over the last four years and will continue to help others who may be struggling.”
Bank of America, which separately agreed yesterday to pay $11.7 billion to resolve mortgage disputes with U.S.-owned Fannie Mae, said in a statement that the Charlotte, N.C.-based lender was profitable in the fourth quarter after accounting for that cost and an additional $2.5 billion for expenses including litigation and a regulatory settlement.
“We support 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,” Dan Frahm, a Bank of America spokesman, said in an email.
Citigroup, the third-biggest U.S. bank by assets, will show a $305 million pre-tax charge for the cash payment when it reports fourth-quarter results Jan. 17, the company said in a statement. The New York-based lender’s $500 million share of the mortgage assistance will be absorbed by existing loan-loss reserves, according to the statement.
In addition to Bank of America, Citibank and JPMorgan, yesterday’s settlement with the Fed and OCC covers Aurora Bank FSB, MetLife Inc., PNC Financial Services Group Inc., Sovereign Bank, SunTrust Banks Inc., US Bancorp and Wells Fargo & Co., the biggest U.S. home lender.
The agreement drew criticism from Rep. Elijah Cummings of Maryland, the top Democrat of the House Oversight and Government Reform Committee. “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 in a statement.
Cummings and Rep. Darrell Issa, the California Republican who leads the oversight panel, sent a letter to regulators last week requesting that they be briefed on the agreement and have questions answered before it was completed.
The accord is meant to speed up payments to borrowers who otherwise would have continued to wait under the case-by-case review. Eligible borrowers are expected to get payments of as much as $125,000, depending on how badly their foreclosure was handled, the regulators said, similar to compensation levels the agencies outlined last year.
A payment agent will act as go-between for payments, and eligible borrowers should expect to be contacted by the end of March, according to the regulators.
The remaining $5.2 billion will go toward modifying loans and forgiveness of deficiency judgments, according to the settlement. The regulators said they will keep trying to secure settlements with mortgage servicers outside of yesterday’s deal.
“If the reviews had been done right the first time, banks would have been on the hook to pay far more to homeowners, even though the planned scheme for recompense fell far short of full compensation,” said Alys Cohen, staff attorney for the National Consumer Law Center, in a statement.
About 495,000 borrowers applied by the earlier settlement’s Dec. 31 deadline to have their foreclosure histories examined for missteps. An additional 159,000 foreclosures were chosen in a sampling process, according to the OCC. The new settlement’s payouts will be dispersed among more than 3.8 million who went through foreclosures in 2009 or 2010.
The existing process to make up for bad foreclosures had failed to compensate any of the borrowers in the nearly two years since the accord was in place.