$26 Billion Foreclosure Settlement Is Approved
Court OKs End of Case Between 49 States and Country’s Biggest Mortgage Lenders
by Curtis White on April 6, 2012
Approval was issued yesterday by the U.S. District Court for the District of Columbia for a $26 billion settlement between the nation’s 5 largest mortgage lenders and the attorneys general of 49 states and D.C. over the mismanagement of foreclosures.
Bank of America, Citibank, JPMorgan Chase, Wells Fargo, and Ally Financial have all agreed to make payments after employees in their banks allowed signatures to be appended to hundreds of documents each day despite having little to no knowledge of what information was contained therein. This practice of “robo-signing” papers led to the case being brought to court by the attorneys general of all 50 states.
Oklahoma is the only state not included in this settlement, as the attorney general there reached an individual agreement with the banks in February of this year.
The banks will now begin delivering forms of compensation to those homeowners who were mistreated due to the poor banking practices. According to the agreement, at least $17 billion from the settlement has been allocated toward the modification of delinquent mortgages.
Bank of America, for example, has already announced that it will begin forgiving up to $100,000 on mortgages. The move is expected to lower the amount of debt owed by as many as 200,000 homeowners across the country.
The consent agreement also allows for $3.7 billion to be used to help current homeowners to refinance their mortgages. This will substantially lower mortgage repayment amounts for many as they will be able to take advantage of extremely low interest rates currently in effect.
The remaining $5 billion will be paid by the lenders to state and federal governments as fines. $1.5 billion of the fines will then be used by the governments to give payments of between $1,500 to $2,000 to actual homeowners whom have had their houses improperly foreclosed. The remainder of the fines will be given to various homeowner advocates and legal counselors.
“The settlement includes far-reaching relief that will help many of our customers and complement our already extensive efforts to improve our borrower assistance efforts and servicing processes,” said Chase spokesperson Amy Bonitatibus.
Timothy Sloan, Chief Financial Officer for Wells Fargo, said that the settlement is “a significant and important agreement, which we believe is good for the country, good for our customers and good for our shareholders.”
The settlement, despite taking a year to iron out, is likely not the end of litigation related to actions during the housing crisis for the largest lenders. The settlement itself does not release the lenders from liability for claims of fraud currently under investigation. It also does not stop individuals from filing private claims, nor is there immunity from class-action lawsuits.
According to Duke University securities law professor, James Cox, “The mortgage foreclosure settlement in many ways is just the least of [the five lenders’] problems. The banks are not going to see the bright sunlight for some time to come.”
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