Ten of the biggest U.S. mortgage companies have agreed to an $8.5 billion settlement with federal regulators that will end a case-by-case review program to identify victims of widespread foreclosure abuses.
With the latest multi-billion-dollar settlement, the nation’s giant mortgage lenders are hoping to put the mortgage mess behind them. But critics of the deal fear it may also leave behind millions of foreclosed homeowners who got little or no relief from the lenders that created the mortgage mess in the first place.
"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," said Rep. Elijah E. Cummings, D.- Md., a member of the House Committee on Oversight and Government Reform and a vocal critical of the government regulators handling of the mortgage crisis.
OCC officials said Monday the consumers will be better served under the settlement because claims will now be paid more quickly and that the cost of the review process was diverting funds that could have been used to pay claims. More than $1.5 billion has already spent on case-by-case reviews, officials said.
“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.”
Under the agreement, banking giants JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and six other mortgage lenders will provide $5.2 billion in mortgage assistance and $3.3 billion in direct payments to wronged borrowers, according the Office of the Comptroller of the Currency and the Federal Reserve.
The other seven lenders include Aurora, MetLife Bank, PNC, Sovereign, SunTrust, and U.S. Bank.
The banks were among 12 lenders and two mortgage servicing companies cited by regulators in 2011 for widespread foreclosure abuses following claims that they had improperly seized homes in the wave of foreclosure filings that swamped the industry after the 2007 housing collapse.
OCC officials said that the 10 lenders have agreed to the settlement in principal, but that the terms will not be disclosed until they are finalized. They said talks are continuing with other institutions ordered to review foreclosures, which include EverBank, OneWest, HSBC and Sovereign Bank.
When industry-wide foreclosure abuses surfaced nearly two years ago, federal banks regulators required banks and servicing companies to hire consulting firms to contact borrowers and review their cases. Some 4.4 million letters were sent to potential claimants, of which about a half million applied by the Dec. 31 deadline to have their cases reviewed.
Consumers groups working to head off foreclosures have criticized the review program from the start, in part because the consulting firms conducting the reviews were hired and paid by the financial institutions cited for wrongful practices. Since then, critics have cited slow progress in reviewing cases and compensating wrongful foreclosure victims.
Federal regulators said in June that the lenders conducting reviews would have to pay as much as $125,000 to borrowers whose homes were wrongly seized. But so far, no borrowers have been paid, according to regulators.
Critics of Monday’s settlement argued that it will leave many wronged homeowners with no further recourse and that it substantially reduced the amount lenders will ultimately have to pay.
“For many people this will be the end of the line," said Diane Thompson, an attorney with the National Consumer Law Center. “This is a much lower number for the banks compared compare to what they were at risk for.”