Ten major banks and mortgage companies 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 (JPM), Bank of America (BAC) and Wells Fargo (WFC),
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 new 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 Office of
the Comptroller of the Currency. Monday's settlement was announced jointly by the OCC and the Federal Reserve.
agreement covers up to 3.8 million people who were in foreclosure in
2009 and 2010. Of those, about 400,000 may be entitled to payments,
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 (C), MetLife Bank (MET), PNC Financial Services (PNC), Sovereign, SunTrust (STI), U.S. Bank (USB) and Aurora. The 2011 action also included GMAC Mortgage, HSBC (HBC) and EMC (EMC).
deal "represents a significant change in direction" from the original,
2011 agreements, Comptroller of the Currency Thomas Curry said in a
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.
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.
Some consumer advocates said that the agreement lets banks off the hook for payments that could have ended up being much higher.
another get out of jail free card for the banks," said Diane Thompson, a
lawyer with the National Consumer Law Center. "It caps their liability
at a total number that's less than they thought they were going to pay
Leaders of a House oversight panel asked regulators for
a briefing on the proposed settlement on Friday. Regulators agreed to
brief committee staff after the settlement was announced on Monday.